The U.K. government wants to launch a consolidator designed to unite small defined contribution plans.
The initiative is intended to tackle DC savings pots that participants accumulate as they move between employers over their working lives. According to government estimates, there are now 13 million of these small pots, holding £1,000 ($1,308) or less, with the number increasing by around 1 million each year.
The U.K. government also estimated that overseeing these small pots costs the retirement plans around £225 million a year in unnecessary administration costs.
The creation of the proposed consolidator will be included in the Pension Schemes Bill, which is expected to be voted on in Parliament later this year.
“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,” said Torsten Bell, U.K. Minister for Pensions, in a news release.
“There are now more small pension pots in the U.K. 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,” he added.
The announcement follows work by the Small Pots Delivery Group, which produced a consultation with the industry overseen by the U.K. government’s Department for Work and Pensions and with representation from bodies including the Financial Conduct Authority, The Pensions Regulator, and the Pensions and Lifetime Savings Association.
“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,” said Gail Izat, managing director for workplace and retail intermediary at Standard Life, part of Phoenix Group, in a news release. “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."
The recommendations of the DWP consultation included creating a platform to identify and source the pension and retirement savings pots that could be consolidated, a framework setting out the rules a pension or retirement savings plan would need to follow to become a consolidator plan, and safeguards for savers whose pension or retirement savings pots would be consolidated, which includes a participant opt-out option.
