Workers could get a £1,000 pension boost as DWP proposes new rule for providers

Workers could soon be set for a pension savings boost of £1,000 on average as the Department for Work and Pensions (DWP) says it is considering bringing in new rules for providers.

The proposed policy would see people get a retirement savings boost from a pension consolidator to scoop up smaller pots that may otherwise become lost.

The DWP says there are now 13 million these small pots, holding £1,000 or less, with the number increasing by around one million a year.

Under reforms that would be introduced as part of the upcoming Pension Schemes Bill, each individual saver’s small pots will be brought together into one pension scheme. People will still have the right to opt out.

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The move would also reduce unnecessary admin costs for businesses, the DWP says, saving the pension industry £225 million a year.

Pensions minister Torsten Bell said: “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.

“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.”

Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “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.”

Rocio Concha, Which? director of policy and advocacy, said: “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.”

Gail Izat, workplace managing director at Standard Life, part of Phoenix Group, said: “The introduction of consolidators that can administer these pots effectively and invest them dynamically will be a step forward.”