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UK turns to industry to solve £26bn lost pensions problem

‘It is time for the DWP to get off the fence and take action’


The Department for Work and Pensions (DWP) has sent out a call for evidence to ask industry the best ways to solve the growing number of savers with several small pension pots.

The issue is quite an extensive one, considering that the average worker in the UK is believed to have more than 10 schemes by the time they reach retirement.

The DWP is currently leading with two potential solutions:

  • A ‘default consolidator’ scheme where all small pots are transferred into; or
  • A ‘pot follows the member’ approach where the pensions go with the worker and are added to their latest scheme.

The move comes after research by the Pension Policy Institute revealed that the value of lost pensions in 2022 hit £26.6bn ($33bn, €30bn), up from £19.4bn in 2018.

Steve Webb, partner at LCP, points out, however that this is not the first time the DWP has tried to find a solution to the small pots problem.

In 2014, the ‘pot follows member’ approach was first introduced but then ditched after the 2015 general election. Then in 2020, the department set up the ‘small pots working group’, followed by an industry co-ordination group a year later.

He added: “Whilst it is welcome that the government is seeking to address the small pots issue, it is time for the DWP to get off the fence and take action. It has been obvious since the start of automatic enrolment 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 ‘pot follows member’ option was always an attractive one, meaning that member pensions would be consolidated with their current provider, possibly on very favourable terms.  The creation of a pensions dashboard infrastructure which links together all of an individual’s pensions would make a pot follows member solution much easier, and there is now no reason not to move ahead. It is time to move on from ‘analysis paralysis’ to action”.


Tom Selby, head of retirement policy at AJ Bell, believes taking action on this issue will boost consumer engagement with their pensions.

“There are now millions of people in workplace pension schemes, including many with multiple pots from previous jobs. As things stand, it can be difficult for people to compare the performance of those pensions, and often people are nervous or fearful of engaging with their retirement fund.

“Introducing a common approach to disclosing performance would at least make it a bit easier for people make comparisons and understand what they’re really getting from their workplace pension. Pensions dashboards have the potential to help in this regard too, particularly if they are developed to allow users to clearly assess costs, charges and performance.

“As the first phase of dashboards reaches implementation, now is the time for the DWP to clearly set out what future phases of the dashboard will look like and whether they will allow users to assess costs, charges and performance in particular.

“When it comes to consolidation beyond small pots, there are significant incentives for people to do this themselves, including the ability to lower charges, improve choice and generally make their lives easier.

“All of this can be achieved easily today – you just need to give your pension details to your chosen, low-cost platform and they’ll do the legwork for you.”

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