Major pensions update as millions set for £1,000 boost to savings

Millions of Brits could be set for a £1,000 boost to their under Government plans to consolidate multiple pension pots into a single scheme. The proposals, which will form part of the upcoming , intend to simplify the way pensions are managed by consolidating pots worth £1,000 or less into one single scheme.

It is hoped that the measures will make it easier for those with multiple plans from different jobs to track their pensions and save the industry £225m annually in administrative costs. Small pension pots, those with £1,000 in them or less, are on the rise due to the changing nature of the workplace, which sees new retirees complete their working life having worked at more places than a generation before. There are believed to be 13 million such pension pots, a figure rising by around one million annually, according to the Department for Work and Pensions (DWP).

Under the changes, small pots will be automatically consolidated into one, something that Torsten Bell, Minister for Pensions, believes will make pensions "simple and rewarding."

He 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 as part of our Plan for Change to put more money in people's pockets."

Those who wish to keep their pots in multiple places will be able to opt out of the scheme.

The government's proposals are part of wider efforts to transform pensions as part of the Pensions Scheme Bill, which is expected to be put before Parliament in the spring.

One critic, however, has warned that the plans fail to address the underlying issue and risk "sweeping the pension into the wrong pot".

Sir Steve Webb, former pensions minister and partner at LCP, said: "The issue surrounds people losing small pension pots when they move jobs.

"Something has to be done about this. However, I don't like this idea for two reasons.

"One is, suppose I leave £1,500 in a pot somewhere after leaving a job - in theory, under these rules, that will just stay where it is. If all the Government plans to do is sweep up tiny pots, we will hardly be better off.

"Secondly, crucially, even if they went bolder and extended the limit above £1,000, there is the chance of sweeping the pension to the wrong place and wrong provider.

"If there were 'magnetic pensions', where your pension pot followed you from job to job, your money would build up in the right place - in the pension you are currently saving into."

Sir Steve also predicted that the new measures would not come into effect until the 2030s, meaning it would be years before pensioners see the benefits of the changes. However, some are more positive.

Gail Izat, workplace managing director at Standard Life, part of the Phoenix Group, added: "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.

"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."