MILLIONS of pensions will benefit from a major change that could save them thousands of pounds.
The Department for Work and Pensions (DWP) has launched a consultation to help ensure that private pensions are fairer and that retirees aren’t missing out on lost pension pots.
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With the average worker having around 11 jobs over the course of their career, many end up with multiple small pension pots.
This creates a risk of people losing track of their savings as well as the admin costs and inefficiencies created for pension providers of maintaining them.
It’s estimated that some 2.8million pension pots are lost and worth an average of £9,470, according to the Pensions Policy Institute.
In total these lost pots contain a whopping £26billion in untapped savings.
Minister for Pensions Laura Trott has unveiled a package of measures to help boost the value of private pensions and reduce any inequalities.
Part of these measures includes assessing the value of automatically consolidating employee pension pots.
The DWP is looking at two ways of doing this.
They’ll first look at the merits of automatically merging small pots into a single “default consolidator scheme”.
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And then look at a scenario where an employee’s pension pot would follow them when they move jobs and automatically move with them to their new employer’s scheme.
As this is a consultation any plans have to be agreed on and then put into law – which could take some time.
Sir Steve Webb, a former pensions minister and now a partner at consultants LCP said: “It has been obvious since the start of automatic enrolment in 2012 that small pots would be an issue, which is why the 2014 Pensions Act provided for a pot-follows-member solution.
“Unfortunately, this was not seen through and, nearly a decade later, we are still at the stage of ‘calls for evidence’ followed by further consultation.
“What is needed is for someone to take a decision and move ahead with implementation.”
The DWP is also undertaking various other pension initiatives, including a consultation on a new value for money framework, developed in partnership with the Pensions Regulator and the Financial Conduct Authority.
This is aimed to set out how schemes will be expected to provide savers with better value from their investments and reduce the inequalities between those on defined benefit (DB) and defined contribution (DC) pension schemes.
A DB pension is where what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year on retiring – but they’re not usually offered by employers anymore.
Instead, you’ll most likely have a DC pension, which is where you are automatically enrolled in your workplace pension scheme when you join.
That means that you save money each month – what you have to retire on is based on how much you’ve put away and how well your investments have done.
The plans will also look to extend the availability of the new collective defined contribution (CDC) pension scheme introduced last year.
With a CDC pension, savers don’t get their own pot.
Instead, employers and their employees put money into a collective pot.
This pot is “shared” between workers, with each employee drawing an income from this big fund when they reach retirement.
Minister for pensions Laura Trott said: “Since 2012, automatic enrolment has transformed the pensions landscape in the UK for the better, but we know there’s more to be done to ensure a fairer future for savers.
“Being in an underperforming pension scheme can lead to someone missing out on thousands of pounds.
“The value for money framework and our new measures will improve security and create better returns for savers, so they can enjoy the retirement they’ve worked so hard for.”
How to track down missing pensions
It can be hard to keep track of where your pension pots are.
You can have many if you move jobs regularly – this is because companies have to auto-enrol staff onto a pension scheme so they can boost their retirement.
It could mean that you have a number of workplace pension pots – but around 1.6 million savers have lost track of where theirs are.
A new online tool, called a pensions dashboard, is expected to help workers track these savings – but it won’t go live until 2025.
In the meantime, your employer should be able to tell you where your pension money is if you have been auto-enrolled onto a scheme.
There may be a website you can login to where you can view who manages your pension, how it is invested and alter your contributions.
Pensions providers are also supposed to send annual statements to scheme members so check old paperwork or emails.
Check online if a provider has merged or been sold to another company as that could mean someone else is in charge of your pension.
If you still can’t find your lost pots, you can contact the Pension Tracing Service.
This is a free government service that lets you find your own workplace or personal pension scheme or someone else’s if they give permission.
