The plan, which will be included in the upcoming Pension Schemes Bill, aims to simplify pension management by consolidating pots worth £1,000 or less into a single scheme.
Although the move has long been discussed, it was officially revealed today (24 April) by Labour as part of its wider efforts to increase economic growth.
Under the proposed changes, these small pots will be automatically consolidated into a single pension scheme managed by authorised workplace pension providers.
Torsten Bell, Minister for Pensions, said: “I want to make pension saving as simple and rewarding as possible. There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings.
“In time this could boost the pension of an average earner by around £1,000 as part of our Plan for Change to put more money in people’s pockets.”
The Government’s initiative is part of the wider Pension Schemes Bill, which is expected to be introduced in Parliament later this Spring.
Experts are divided over the plans
The plan has faced some criticism from experts who question the effectiveness of simply consolidating smaller pots without addressing the underlying issue of people losing track of their pensions altogether.
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“Something has to be done about this. However, I don’t like this idea for two reasons.
“Secondly, crucially, even if they went bolder and extended the limit above £1,000, there is the chance of sweeping the pension to the wrong place and wrong provider.
He estimated that the plans were unlikely to take effect until at least 2030 which means it is will be years before savers feel the benefits.
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “The accumulation of small pots creates unnecessary cost and complexity for savers and schemes alike.
“We look forward to working on delivering the recommendations of the Small Pots Development Group and are pleased the Government is tackling this long-standing issue in the Pension Schemes Bill.”
“The introduction of consolidators that can administer these pots effectively and invest them dynamically will be a step forward and when combined with pension dashboards will empower people to take control of their savings.”
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