Help for savers with multiple small pension pots under consideration by DWP
The government is exploring options to help workers achieve better pension outcomes, including those with multiple small, scattered pension pots.
Since the average worker has about 11 jobs over the course of their career, some may end up with several small pension pots.
This risks people losing track of their savings and the administrative costs and inefficiencies that pension providers face in managing them.
A call for evidence on small pension pots has been launched by the Department for Works and Pensions (DWP) covering England, Scotland and Wales and runs until 27 March 2023.
It looks at the potential scope for auto-consolidation of some pots and recognizes the impact of other actions, including enabling more member engagement, that could help.
Two options that would automatically bring more annuities together include a standard consolidator where small pots would be automatically transferred into one system; and “pot-follows members,” where a pension pot follows an employee when they change jobs and automatically moves with them into their new employer’s system.
Sir Steve Webb, a former Liberal Democrat Pensions Secretary who is now a partner at consultancy firms LCP (Lane Clark & Peacock), said: “From the start of automatic registration (in 2012) it was obvious that small pots were going to be a problem That is why the 2014 pension law provided for a pot-follows-member solution.
“Unfortunately, this was not seen through and almost a decade later we are still at the ‘evidence-calling’ stage followed by further consultations. What we need is someone to make a decision and drive execution.”
The DWP is also leading various other pensions initiatives, including a consultation on a new Value-for-Money (VFM) framework, developed in collaboration with the Pensions Regulator and the Financial Conduct Authority, which sets out how the schemes are expected to perform they offer savers better value from their investments and quality of service.
The VFM framework will improve competition between defined contribution (DC) pension schemes and require pension schemes to disclose key metrics and service standards, the government said.
Pensions Secretary Laura Trott said: “Since 2012, automatic enrollment has changed the UK pensions landscape for the better, but we know more needs to be done to ensure a fairer future for savers.
“Being in a poorly performing pension system can mean someone is missing out on thousands of pounds. Value for money and our new measures will improve security and create better returns for savers so they can enjoy the retirement they’ve worked so hard to achieve.”
Tom Selby, head of pensions policy at AJ Bell, said: “There are now millions of people on occupational pension schemes, including many with multiple pots from previous jobs. As of today, it can be difficult for people to compare the performance of these pensions and often people are nervous or afraid to engage with their pension fund.
“Introducing a common approach to benefit disclosure would make it at least a little easier for people to make comparisons and understand what they’re really getting from their company pension plan.”
Phil Brown, Director of Policy at People’s Partnership, provider of the National Pension, said: “Value for money is crucial to ensure people have a full and clear picture when consolidating their savings so they can make the right financial choice be able to make decisions about their future .”
He added: “To ensure savers can easily compare their provider’s performance, the most sensible future approach would be to get pension companies to prominently display their price-performance data on pension dashboards.”
Nigel Peaple, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “The PLSA supports all efforts to improve the retirement incomes of everyone in the UK and so we welcome this package of reforms which aim to boost the Prospects for the growing share of savings in DC systems.
“The reforms proposed today have the potential over time to allow savers to benefit from greater efficiency and value from the management of their pensions, including by consolidating small holdings that people accumulate over the course of their careers accumulated.”