24 April 2025
If you are covering the DWP’s plan to bring together small pension pots, please find a comment below from Jon Greer, head of retirement policy at Quilter:
“The government's move to prompt consolidation of small workplace pension pots is a much needed tidying up exercise, coming 13 years after the start of pensions auto enrolment. As working habits have evolved, people frequently change jobs, leaving behind a trail of small pension pots. This unintended consequence can make retirement saving complicated and may cost savers money.
“The government is understandably keen to ensure the market works best for savers, shaking up workplace pensions to make them more efficient. They have chosen a 'multiple default consolidator' model, which involves dividing small pots among multiple consolidators. This approach could reduce the administrative burden, as many providers already manage a high concentration of small pots.
“For pension providers, dealing with small pots, especially those with less than £1,000, is inefficient and can result in financial losses due to administrative costs. On average, it costs about £20 annually to administer a deferred pension pot. For a pot of £350, if a provider only recoups £1.40 per year through a 0.4% Annual Management Charge (AMC), this can quickly turn into a loss.
“If you have multiple small pots, you could be paying unnecessary administrative costs. Additionally, some providers may offset their losses by charging higher fees on larger pension pots, meaning you could be cross-subsidising the costs associated with managing smaller pots. Consolidating your small pots can save money and simplify your retirement planning. It reduces the administrative burden of managing multiple pots and minimises the chance of lost pension pots.
“This initiative is set to boost retirement savings for the average worker by around £1,000 and save businesses £225 million a year in unnecessary admin costs. It will cut costs for savers, make it easier to keep track of pensions, and boost living standards, making working people better off. This reform is a significant step towards ensuring that workplace pensions work harder for savers.”
