The risk of small deferred pension pots amassing was a concern raised at the very earliest stage of development of workplace pension policy and without action it is estimated that by 2035 there will be 27 million deferred pots.
The Department for Work and Pensions together with the Pensions Policy Institute (PPI) and Now: Pensions, are leading on a Small Pots Working Group that will provide an initial assessment, recommendations and an indicative roadmap of actions for industry, delivery partners and Government. The Government continues to work with stakeholders to ensure the delivery of Pensions Dashboards, that will enable consumers to see what pension pots they have, online and in one place and the Small Pots Working Group will compliment this work and seeks to identify the priority option or combination of options to help tackle the growth of deferred, small pension pots. A small deferred member pot arises when an employee and their employer stop contributing to the pension scheme. This may occur when an employee leaves their employment or can happen when the employee has missed the opt-out window. If the employee fails to monitor their deferred scheme, there is a risk that some small pots will be eroded to nil or be so small as to be almost worthless at the point of retirement. Many solutions to this problem have been discussed over recent years. During the summer of 2020 the Pensions Policy Institute (PPI) published a report to detail the possible policy options that could be delivered to tackle the growing number of deferred members with small pots.
The proposals considered within the PPI report include:
Pot follows Member Lifetime provider
• • • • •
Same provider consolidation
Default consolidator Member exchange
Automatic enrolment pensions policy has been successfully delivered by 1.7 million employers resulting in 10 million employees now engaged with pension saving. After the hard work and commitment delivered by the wider payroll profession to make this policy a success let us now work together to help make every penny saved by the employees we serve, count towards life in retirement.
CIPP comment
The CIPP policy and research team are working alongside other stakeholders on this project and have been gathering evidence from the payroll sector through surveys and discussion. Questions posed include:
• • • •
How practical are the proposed solutions? Are there other options that could be explored? What are the main barriers to implementing solutions?
How might these be overcome?
Please contact samantha.mann@cipp.org.uk if you have any thoughts, views or experience that you wish to share.
The needs of the consumer will be at the heart of all work delivered by the Small Pots Working Group and the views of the whole payroll profession, including software developers, payroll bureaux, bookkeepers, accountants and employers are essential to ensure the right solution is taken forward.
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