Later today I will be publishing the Command Paper “Government response to the consultation: Improving transfers and dealing with small pension pots, (Cm8402)”, along with an associated impact assessment.
From this month, the first savers will start to be automatically enrolled into workplace pension schemes. This will help many people to start saving, or save more into a pension. But bringing more people into pension saving will increase the numbers of small dormant pots, which are created as people move jobs.
Our updated figures, set out in the impact assessment, suggest that around 50 million dormant pots will be created by 2050 if no changes are made to the current transfers system. This could significantly undermine the Government’s commitment to encourage pension saving if people lose track of their pots, and so miss out on valuable retirement income
We need to reduce the number of small dormant pension pots in the system, making it easier for people to keep track of their savings. This will also reduce administrative burdens for providers, supporting low-cost pension provision. We issued a consultation document in December 2011 which set out ways to deal with a proliferation of small pots, ranging from small changes to the current system to encourage transfers, to automatic transfers of small pension pots. I am grateful to all those individuals and organisations who provided responses and participated in our workshops.
The overwhelming response to the consultation was that the small pots issue urgently needs to be resolved. The vast majority of our respondents agreed that an automated transfer system is the best way forward. Creating a system in which small pots follow people through employment is the preferred approach among savers, according to a recent survey by the Association of British Insurers. The Government’s analysis indicates that this option will achieve the most consolidation and generate the most administrative savings in the long run. We have outlined our preference for this approach in the Command Paper, ahead of essential work with all interested parties to firm up the policy and design an implementation strategy.
I will place a copy of the impact assessment in the House Library.