Pensions minister Guy Opperman has introduced a cross-sector working group to address the problems caused by small pension pots.
At a virtual Department for Work and Pensions event, Mr Opperman outlined his vision for the working group, the challenges small pots present and the government’s commitment to protect consumers.
The number of small pots has significantly grown since the introduction of auto-enrolment, with many savers having held a number of jobs and pots but failing to consolidate their pension savings.
Mr Opperman said: “Automatic enrolment has transformed the way people save for retirement, meaning millions more can look forward to a more secure future.
“With the launch of the cross-sector working group and our ongoing efforts to make pensions dashboards a reality, we are focused on ensuring that consumers can stay on top of their pension savings, make more informed choices about their financial futures and have real returns from their savings.”
The working group is expected to report later this autumn with an initial assessment, recommendations and a roadmap of actions for the pensions industry and government.
The DWP said the working group will complement the work on pension dashboards “to identify the priority option or combination of options to help tackle the growth of deferred, small pension pots – involving experts from within the pensions industry, fintech, and those representing member interests and employers”.
According to recent research from Now: Pensions, there are around 8m deferred pots, but this is set to rise to 27m by 2035, with Covid-19 only set to accelerate this as job losses grow.
Adrian Boulding, director of policy at Now: Pensions, said: “A worker has exactly the same needs in retirement whether they’ve had one single job for life or whether they’ve worked for 10 different employers.
“Having multiple pots can be detrimental to savers as they fail to benefit from economies of scale, can be hit by multiple investment costs, and can lose track of their pensions, which exacerbates the long-standing problem of lack of comprehension and the value of saving”
Small scheme consolidation has long been on the DWP’s agenda. The concept of “pot follows member” was first proposed by Steve Webb when he was pensions minister in 2015 as part of the introduction of auto-enrolment.
But Sir Steve’s successor, Baroness Altmann, scrapped the process of introducing the scheme on the basis it would be a significant new process for both schemes and members to get to grips with at a time when the pensions market was changing fast.