Up to 2m deferred pension pots could be merged into single account if five major AE providers become ‘default’ consolidators under current government proposals.
These figures are part of the Pensions Data Project — the first large-scale longitudinal dataset of individual retirement savings across multiple providers in the UK.
This study, co-ordinated by the Pensions Policy Institute (PPI) with data being analysed by PwC, is designed to cover a critical ‘evidence gap’ in the UK pensions landscape, and covers five major master trust providers, giving an in-depth view of these pensions savings of almost half the UK working population.
The data shows the potential impact of future government policy as well as gender and age disparities in savings, with the value of individual pots underscoring the risks of fragmentation and inadequacy.
This report found that most pension pots remain small, with more than half of pots in 2022/23 worth less than £1,000, and seven in 10 less than £2,500.
The report found that consolidation modelling suggests that merging pots could lift average balances by more than 25 per cent, reducing the number of very small pots, and strengthen member outcomes.
Overall the report found that men, older members, and those in certain regions typically have higher balances, while women, younger savers, and lower-income areas lag behind.
However the report found that total assets have tripled in four years to £64bn, with mean values of these pots more than doubling.
These findings come as the government’s Pension Schemes Bill, which would consolidate individuals’ small DC pension pots through multiple default consolidators, faces parliamentary scrutiny. These findings are also likely to feed into the The Pensions Commission which is examining adequacy levels within the pensions system.
The UK master trusts taking part in this project were L&G, Nest, Now: pensions, People’s Pension and Smart Pension.
The completion of the ‘private beta’ phase of the project has demonstrated that combining data securely across providers is feasible – alongside the importance of cross-industry collaboration to improve outcomes for savers – laying a foundation for the next phase of the project to build a comprehensive dataset of UK retirement savings.
The report found that 3.6m members with multiple pots would be able to visit the Pensions Dashboard, when launched, to view all of their pension savings in one place — on the expectation that the average number of pots members of the five providers hold, 1.3, will rise when pots from other types of pension schemes and funds are also considered.
The PPI project lead and co-author of the report Nicky Day says: “We are proud to publish the final report of the Private Beta phase for The Pensions Data Project, demonstrating the powerful insights that can be delivered when the industry collaborates to deliver better outcomes for savers.
“This research proves combining data securely across providers is possible, laying the groundwork for the wider sector to now work together to fill a critical evidence gap in the UK pension system. When the sector and policymakers are better informed, we can maximise retirement savings for everyone.”
Smart Pension CEO Jamie Fiveash adds: “We are proud to have been part of this innovative project, which will help to inform pensions policy such as resolving the number of small and dormant pots which continue to grow significantly. It is essential that policymakers and providers have the tools and data to enable them to make informed decisions.”
Nest Corporation senior analyst Richard Notley adds: “This research highlights the growing issue of small pots across the DC workplace pension industry. By securely combining data with other providers in this study, Nest has shown its commitment to developing solutions that help workers make the most of their retirement savings and secure a more stable financial future.”
L&G head of product policy strategy, workplace savings Colin Clarke, says: “Tackling small pots remains one of the biggest challenges facing our industry, especially with the growth of DC pensions. Addressing this issue is crucial, as the proliferation of small pots and a lack of member engagement can be a real barrier to achieving adequate retirement savings.”
