The government has abandoned plans for an ambitious pensions consolidation service that would have helped workers to avoid piling up numerous tiny, uneconomic and fiddly pension pots in the course of a career.
The “pot follows member” initiative, which would have cost employers and the pensions industry an estimated £3.5 billion to set up, is to be dropped, Baroness Altmann, the pensions minister, said.
The aim had been to help workers by automatically transferring their pension benefits to a single pot, rather than leaving them generating a series of tiny pots as they hop from job to job. Without the reform, there will be up to 50 million dormant pension pots by 2050, the Department for Work and Pensions has estimated.
However, Baroness Altmann said in a written parliamentary statement that employers and the industry needed the time and space to focus on other innovations, such as the new pension freedoms and the new state pension, to ensure that they were successful.
“The time is not right to ask the pensions industry to absorb the new swathe of regulation that would be needed to make such further reforms work effectively,” she said.
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She also said that the DWP was shelving other plans tabled by the previous government to push employers towards shouldering some of the risks in pensions through new types of schemes known as “defined ambition” and “collective” defined contribution.
The introduction of automatic enrolment has led to millions more novice pension savers, who still start to accumulate tens of millions of small dormant pension pots as they switch jobs.
Some experts welcomed the U-turn. “This is fantastic news,” Tom McPhail, the head of pensions research at Hargreaves Lansdown, said. The consolidation service would have forced the liquidation, transfer and reinvestment of tiny pots — at very high expense — he said. It would also have discouraged people from engaging with their pension arrangements.
“It was a perverse policy which was fundamentally at odds with pension freedoms,” he said.
David Robbins, a consultant with Towers Watson, said: “Automatic transfers may have been put on the back burner but the problem they were designed to solve has not gone away.”