DWP launches consultation on small pension pots

The Department for Work and Pensions (DWP) has launched a consultation on small pension pots¹. The call for evidence applies to England, Scotland and Wales and is set to run until 27 March 2023¹.

Two options are being considered. The first is a default consolidator, under which small pots would automatically be transferred into a scheme. The second is a "pot follows member" scheme, where a pension pot would follow an employee when they get a new job and automatically move to their new employer's scheme¹.

Occupational pensions are devolved in Northern Ireland. The consultation document says it expects Northern Ireland will make similar provisions, but there is no detail on what these are or when they might come into force¹.

The consultation sits alongside separate work on pensions dashboards, which do not yet exist. Schemes will join the dashboard system in stages, starting in spring 2023, but the public will not have access to dashboards until summer 2024 at the earliest¹. Dashboards are intended to let people view up-to-date details of their pension pots and the state pension in one place online, and could help reunite people with lost pots¹.

The scale of the problem is set out in figures published by the Pensions Policy Institute (PPI) and the Association of British Insurers (ABI): around 2.8m pensions are considered "lost", an increase of 75% over the past four years, with the average lost pot worth £9,470¹.

Why it matters for households

People who change jobs are usually enrolled into a new workplace pension on top of any pots they already hold from previous employers¹. The consultation concerns deferred small pots: pension savings left behind in a former employer's scheme that are no longer being paid into.

The two options under consideration would change where such pots sit. Under a default consolidator, small pots would move automatically into a single scheme; under pot follows member, the pot would move with the employee to a new employer's scheme¹. Neither approach is in force, and the call for evidence closes on 27 March 2023¹.

For anyone trying to locate a pot in the meantime, the government's Pension Tracing Service searches a database of more than 200,000 workplace and personal pension schemes and is free to use¹. Employers must provide details of their pension scheme within six weeks of a person starting work, and defined contribution schemes must send annual statements; many defined benefit schemes do so as well¹.

What happens next

The call for evidence runs until 27 March 2023¹. No date has been given for a government response, and no timetable for legislation on either option has been reported. Northern Ireland provisions have not been detailed¹. Dashboards remain on course for public access in summer 2024 at the earliest, with schemes joining in stages from spring 2023¹.