DWP shake-up could result in £1,000 pension boost for some

Under new plans being mulled over by the Government, millions of workers could see their pension pots swell by £1,000. The Department for Work and Pensions (DWP) is considering the launch of a small pension pots consolidator as part of its upcoming Pension Schemes Bill.

The idea behind this is to merge all your smaller pension pots into one scheme. The DWP has pointed out that having numerous small pots can hinder savers from getting a good return on their retirement fund due to multiple flat rate charges.

At present, there are 13 million small pension pots holding £1,000 or less, with the number growing by around one million each year. Pension pots can get lost for various reasons, typically when people switch jobs, relocate and fail to update their records with their pension provider.

The consolidator would also cut red tape 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 fresh plans would be rolled out alongside the pensions dashboard, which will enable savers to view all their pension pots in one place, according to the Mirror.

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

Minister for Pensions, Torsten Bell, is thrilled with the uptick in retirement savings numbers, announcing: "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 pointed out the growing problem of numerous small pension pots, saying: "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 unveiled an initiative aimed at merging these disparate funds, stating: "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."

Echoing the government's sentiment, Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), expressed her support for the new measure: "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.

"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, Director of Policy and Advocacy at Which?

, has hailed the government's commitment to the consolidation of small pension pots with enthusiasm: "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."

Meanwhile, Gail Izat, Workplace Managing Director at Standard Life, part of Phoenix Group, underscored the complexity due to increasing numbers of 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."

Furthermore, she expressed her approval of the proactive approach being put forth: "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."