The government has opted for a pot follows member approach to dealing with small pots, it has announced today.

The Department for Work and Pensions has consulted on potential solutions, including a central aggregator approach. However, announcing its decision the department said the pot follows member model will give “far greater levels of consolidation” and could halve the potential number of dormant pots by 2050.

Announcing the decision, Pensions Minister Steve Webb said that a system was needed in which people built up “worthwhile” pension pots in one place, rather than lots of scattered small pots.

“Our plans will mean that individuals get better value for their savings and bigger pensions as a result.”

“Automatic enrolment will help millions of people save into a pension, with a contribution from their employer. Our overall goal of getting millions more people saving would be completely undermined if people are let down by a set of rules that mean people lose track of money saved and miss out on vital income in retirement.“

An ABI survey had earlier revealed the pot follows member approach as being the preferred model among savers, according to director general of the association Otto Thoresen.

“We are pleased that the government, after considering all the issues, have announced their intention to develop a ‘small pot follows member' design. This will reduce the number of lost or stranded pots and give people greater choice as they will have a larger pot when buying a retirement income,” Thoresen said.

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