DWP launches working group to tackle small pension pots issue

The Department for Work and Pensions (DWP) has launched a cross-sector working group with the industry to assess and make recommendations on ways to address the number of deferred, small pension pots.

Concerns have been growing about combination charges alongside high numbers of small deferred pension pots could lead to individuals having their savings eroded by charges.

Speaking at a DWP virtual event, supported by the Pensions Policy Institute (PPI) and Now Pensions, Pensions Minister, Guy Opperman, announced the working group and outlined its vision.

It will report later this autumn with an initial assessment, recommendations and an indicative ‘roadmap’ of actions for the industry, delivery partner and the government.

“Automatic enrolment has transformed the way people save for retirement, meaning millions more can look forward to a more secure future,” commented Pensions Minister, Guy Opperman.

“With the launch of the cross-sector working group and our ongoing efforts to make pensions dashboards a reality, we are focused on ensuring that consumers can stay on top of their pension savings, make more informed choices about their financial futures and have real returns from their savings.”

The DWP said that the new working group will complement the work on pensions dashboards to identify the priority option or combination of options to help tackle the growth of deferred, small pension pots.

Now Pensions director of policy, Adrian Boulding, said: “We are so pleased that the DWP has announced that it will be creating a taskforce to review the issue of increasing numbers of small deferred pots. Currently there are around 8 million deferred pots but our recent research found this is set to rise to 27 million by 2035, and the Covid-19 crisis is only set to accelerate this as job losses grow.

“A worker has exactly the same needs in retirement whether they’ve had one single job for life or whether they’ve worked for 10 different employers. Having multiple pots can be detrimental to savers as they fail to benefit from economies of scale, can be hit by multiple investment costs, and can lose track of their pensions, which exacerbates the long-standing problem of lack of comprehension and the value of saving.”

The People’s Pension head of policy, Tim Gosling, added: “We welcome the government taking the significant step of setting up a working group to examine this very important issue.

“The proliferation of small pots is a growing problem. Both for those who end up with a trail of small pots, potentially losing track of them and incurring higher charges, and for all other savers whose savings cross-subsidise the large number of pots that are not sufficiently large to even cover the costs of running them.”

Phoenix Group will be joining the expert panels. Its head of UK proposition, Neil Hugh, commented: “The Phoenix Group has long been supportive of the pensions dashboard and we are pleased to see the DWP using this opportunity to look at the growing challenge of deferred, small pension pots.

"The PPI report in July showed there is unlikely to be one solution that easily resolves this issue. Industry engagement is important when it comes to agreeing the way forward, and we intend to play an active role in the expert panels which will be looking at the options."

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