Across the defined contribution pension market, over 12 million deferred pension pots worth less than £1,000 are no longer being paid into. These small-value pension pots are said to total £4bn in assets.1
Last year, the Pensions Policy Institute also revealed that the value of lost pension pots had increased by £7billion in four years to £26.6billion.2
Together, this is a huge amount of money that could be working harder to deliver better outcomes for people in retirement.
To tackle this, the UK Government is proposing legislation – announced in July – for a super consolidator model where authorised schemes could act as consolidators, initially for pots of up to £1,000.
Will the largest workplace pension providers choose to be consolidators, helping to sweep up these small pots? The devil is in the detail of how a small pot clearing house might work and the economics may prove challenging but I think it will be yes from the industry.
It can take less than a year to build up a workplace pension worth £1,000 and many people will find themselves retiring with multiple pension pots. Many pots might be just over that financial threshold and out of scope for auto-consolidation. The legislation will surely need to look beyond £1,000, but equally providers can step in to help now.
These proposed changes are still years away. Meanwhile, the proliferation of deferred pension pots needs addressed now.
So, what are we waiting for?
Small pension pots: what we can do now
Whether it’s September’s Pension Engagement Season, industry working together, scheme comms and seminars, we need to do all we can to keep raising awareness of pensions so that people understand how they can make the most of them.
Scottish Widows’ multi-employer and public online education sessions are on track to help more than 50,000 people understand their pensions better this year. The number one question our experts get asked is about pot consolidation.
That makes sense as having fewer pension pots makes it easier for people to know what they’ve got, plan for their retirement and drives better engagement.4 Someone with a pot of £100k is twice as likely to be registered for our digital services than those with a pot of £40k, for example.
Ahead of a full dashboard, we are already helping customers stay in touch with their pension. Being part of Lloyds Banking Group means they can see all the pensions they hold with us next to their Lloyds, Halifax, and Bank of Scotland bank accounts.
This helps them feel more connected to their pension savings, as well as being effective at reuniting thousands of customers who have left employers – and their pensions behind, too.
Scottish Widows makes it easy to bring pensions together, with over £3bn transferred through digital consolidation to date – on the web, in their pension app, even in their banking app. It takes on average just six minutes in the Scottish Widows app – and it used to take a seven-page paper application.
Later this year, members will be able to aggregate pensions from other providers in our app, giving them a single view of all their pensions in one place. It’s a big step towards delivering better value for money and moving to a dashboard-style view.
We want to work closer with trustees, employers, and advisers to lead the way in making this simple for members and deliver better outcomes.
Help for members must be quicker. We’ll be relentless in taking the friction out of the consolidation process to help savers if it’s right for them.
Personalised, helpful guidance and simple consolidation tools are the least we can offer now, to get things moving in the right direction, and we can all play a part.
References
[1, 2] According to ABI, Lost pensions: what’s the scale and impact?
[3] According to Department for Work and Pensions, Ending the proliferation of deferred small pots.
[4] According to gov.uk, Understanding member engagement with workplace pensions.