Brits could get extra £1,000 a year due to DWP shake-up

The Department for Work and Pensions (DWP) is looking at introducing a small pension pots consolidator as part of its upcoming Pension Schemes Bill, which would mean a £1,000 boost for some savers

Millions of workers could see their pension pots boosted by £1,000 under new plans being considered by the Government. The Department for Work and Pensions (DWP) is contemplating the introduction of a small pension pots consolidator as part of its forthcoming Pension Schemes Bill.

The concept involves the consolidator amalgamating all your smaller pension pots into one scheme. The DWP has stated that having multiple small pots can prevent savers from getting a good return on their retirement fund due to multiple flat rate charges.

Currently, there are 13 million small pension pots holding £1,000 or less, with the number increasing by around one million annually. Pension pots can become lost for various reasons, usually when people change jobs, move house and fail to update their records with their pension provider.

The consolidator would also reduce bureaucracy for businesses managing the schemes, saving them an estimated £225million annually in unnecessary administrative costs. Pension savers would have the option to opt out of the consolidator if they wish.

These new plans would be introduced alongside the pensions dashboard, which will allow savers to view all their pension pots in one place, reports the Mirror.

The first pension provider successfully connected to the pensions dashboards on April 17. The goal is for approximately 3,000 providers and schemes to be connected to the dashboard by October 31, 2026.

Minister for Pensions, Torsten Bell, has expressed his delight at the increase in people saving for their retirement. He said: "It's great news that more people are saving for their retirement. But I want to make pension saving as simple and rewarding as possible."

He highlighted the issue of small pension pots, stating: "There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year."

Bell outlined a plan to consolidate these small pots into one high-performing pension, saying: "We will automatically bring together people's small pots into one high performing pension, reducing costs as well as hassle for savers. 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."

Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), supported the government's proposal. She said: "The accumulation of small pots creates unnecessary cost and complexity for savers and schemes alike. The PLSA has worked extensively with industry and the DWP to propose solutions and supports the model being proposed by the Government."

She added: "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."

Rocio Concha, Which? Director of Policy and Advocacy, expressed her satisfaction with the government's commitment to consolidating smaller pension pots: "Which? called for the consolidation of small pots under £1,000 before the election, so we are delighted that the government is committing to doing this - a move that will provide greater value for savers and support them to keep track of their pensions. Which? looks forward to working with the government to ensure the pensions system is fit for the modern age."

Gail Izat, Workplace Managing Director at Standard Life, part of Phoenix Group, highlighted the growing issue of numerous small pension pots: "The number of small pots in the system is growing at a rate of knots and ultimately heightens the risk that people will lose track of their hard-earned savings."

She also welcomed the proposed solution: "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. We look forward to working with government on the creation of this new system."