£1,000 Retirement Savings Boost from April 2025: A new initiative launched by the government aims to tackle the growing issue of small, forgotten pension pots that many people accumulate as they move between employers throughout their careers. Currently, there are around 13 million small pension pots holding £1,000 or less, and this number is increasing by one million every year.
These small pots can be a hassle for savers and prevent them from getting a good return on their investments, especially when multiple flat-rate charges apply. Furthermore, managing these pots costs the pensions industry around £225 million annually in unnecessary administrative expenses.
Key takeaways:
- Government unveils reforms to combine small pension pots to make working people better off as part of Plan for Change
- Move is set to boost retirement savings for the average worker by around £1000 and save businesses £225 million a year in unnecessary admin costs
- Comes as part of Pension Schemes Bill which will drive investment in pensions industry and deliver on the government’s growth mission
What Are the New Reforms?
Under the Pension Schemes Bill, introduced by the government, reforms will allow all of an individual’s small pension pots to be automatically brought together into one pension scheme that is certified as providing good value for savers. While this consolidation will be automatic, individuals will still have the option to opt out if they wish. This will simplify the pension system, reduce administrative costs, and make it easier for savers to keep track of their pensions.
These changes are designed to reduce the costs for savers, improve the performance of pension pots, and ultimately increase the average pension pot by around £1,000. This will help raise living standards and make working people better off, all while cutting down on red tape for businesses managing the schemes and supporting economic growth as part of the government’s “Plan for Change.”
The Government’s Plan for Change
Minister for Pensions, Torsten Bell, said that the increasing number of small pension pots in the UK—now greater than the number of pensioners—has created unnecessary costs and complications for workers trying to manage their savings. The government aims to bring these small pots together into one high-performing pension, which will reduce hassle and increase returns for savers. Over time, this could lead to an increase of around £1,000 in the average worker’s pension pot.
How Will the Reforms Work?
The reforms are based on findings from the Small Pots Delivery Group, which worked on designing the consolidation system. Their proposals include:
- A Small Pots Data Platform that identifies pension pots that could be consolidated.
- A set of rules for the schemes that would consolidate these pots, ensuring they are already in an Automatic Enrolment qualifying scheme, offer good value for money, and provide additional protection for members from flat-fee charges.
- A safeguard allowing members the option to opt out if they do not want their pots to be consolidated.
The introduction of the Pension Schemes Bill is a step towards fulfilling the government’s manifesto commitment to increase investment returns and make working people better off. The Bill is expected to help more than 15 million people, increase pension pots by £11,000, and encourage greater investment in productive assets.
Industry Reactions
Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), welcomed the government’s initiative, saying that the accumulation of small pots has caused unnecessary complexity for both savers and schemes. The PLSA looks forward to working with the government to implement the proposed solutions.
Rocio Concha, Director of Policy and Advocacy at Which?, expressed support for the consolidation of small pots, which will help savers track their pensions and increase the value of their savings.
Gail Izat, Workplace Managing Director at Standard Life, pointed out that the number of small pension pots is growing rapidly, putting savers at risk of losing track of their pensions. She believes the introduction of consolidators to manage these pots will improve the system and, when combined with pension dashboards, will empower people to take control of their pensions.
The government’s reforms to address small pension pots aim to simplify the system, reduce costs, and improve the value of pensions for workers. These changes will help millions of people, ensuring that more individuals can save for their retirement without the hassle of managing multiple small pots. As part of the broader “Plan for Change,” these reforms are designed to improve living standards, boost savings, and support economic growth.
Additional Information
- The Small Pots Delivery Group report can be found here: Small Pots Delivery Group Report – GOV.UK
The Delivery Group was chaired by the DWP and had representation from:
- The Financial Conduct Authority
- The Pensions Regulator
- Pension and Lifetime Savings Association
- Association of British Insurers
- Pensions Administration Standards Association
- Chartered Institute of Payroll Professionals
- Association of Pensions Lawyers
- Which?
- Federation of Small Businesses
- Confederation of British Industry
- Chair of the industry led Small Pots Coordination Group
- Pensions Policy Institute
FAQ
What are small pension pots?
Small pension pots are pension savings of £1,000 or less that many people accumulate when they change jobs throughout their working life.
How will the new reforms affect my pension pots?
The new reforms will consolidate all of your small pension pots into one high-performing pension scheme, simplifying management and reducing administrative costs for savers.
Can I opt out of the pension pot consolidation?
Yes, individuals will retain the right to opt out of the automatic consolidation if they choose not to participate in the scheme.
How will the reforms benefit me?
The consolidation of small pots will reduce costs, help you keep track of your pensions, and could increase your pension savings by around £1,000 over time.
Who will be affected by these pension reforms?
The reforms will benefit over 15 million people who have small pension pots, aiming to simplify the system and improve retirement savings for workers.
