PensionBee, a leading online pension provider, comments on a new report from the Institute for Fiscal Studies, which evaluated the problems and potential policies regarding small pension pots.
Lisa Picardo, Chief Business Officer UK of PensionBee, commented:
“The IFS report highlights the urgent need to tackle the growing issue of small deferred pension pots, which not only create unnecessary complexity for savers but also increase costs across the pensions industry. With nearly 20 million defined contribution (DC) pension pots worth under £10,000 no longer being contributed to, and 12.1 million of these worth under £1,000, there is a clear need for reform.
“Small pot consolidation, particularly for micro pots, can be highly beneficial. Our own research shows that nearly one in five UK adults feel certain or believe they have lost a pension pot, equating to approximately 8.8 million individuals. By making consolidation the default for micro pots, we can help savers take control of their retirement savings, reducing the likelihood of lost pensions while also improving investment outcomes.
“At present, successful small pot consolidation is heavily dependent on the pensions dashboard infrastructure being implemented effectively. This adds further urgency to ensuring the dashboard is delivered in a way that enables savers to track and consolidate their pensions with ease. In the meantime, savers can take proactive steps to keep their pensions on track by reviewing and consolidating their pots where possible, helping to reduce fragmentation and make retirement planning easier.
“While small pot consolidation is a vital step forward, the long-term goal should be to develop a system where savers can maintain a single pension throughout their working life. The ‘lifetime provider’ model represents a natural evolution, reducing the need for constant consolidation while ensuring people reach retirement with a more manageable and cost-effective pension. However, it’s crucial to ensure that any changes prioritise savers’ best interests, particularly those with smaller pots who may face higher fees.
“The priority for policy makers must be to simplify pensions, reduce costs, and improve retirement outcomes. Small pot consolidation is a key first step, but broader structural reform will be needed to build a system that truly works for savers in the long run.”
