The Government has unveiled reforms to combine small pension pots which, they say, will “make working people better off”. But what will it mean in practice? And will savers have a say in where their pensions go?

One of the complications generated by automatic enrolment is that millions of extra small pension pots are being generated every year. On top of that, an estimated 13 million pension pots are actually deemed “lost”.

So how will the Government’s new scheme, part of the Pension Schemes Bill, help? They say that each individual’s small pots will be brought together into one pension scheme that is certified as “delivering good value to savers”.

The claim is that the move is set to boost retirement savings for the average worker by around £1000 by getting a better return on their savings if they have to pay multiple flat rate charges. It will also save businesses £225 million a year in unnecessary admin costs.

This new initiative will also tackle what the Government describe as “the growing problem of small, forgotten pension pots that many people accumulate as they move between employers over their working lives”.

The move has garnered broad approval from the pensions sector.

Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association, said: “The accumulation of small pots creates unnecessary cost and complexity for savers and schemes alike. The PLSA has worked extensively with industry and the DWP to propose solutions and supports the model being proposed by the Government.”

Rocio Concha, Which? Director of Policy and Advocacy, said:  Which? called for the consolidation of small pots under £1,000 before the election, so we are delighted that the government is committing to doing this – a move that will provide greater value for savers and support them to keep track of their pensions.”

But will savers have a say?

Rachel Vahey, head of public policy at AJ Bell, picks up on this crucial point: “Automatic enrolment is one of the big public policy success stories of our time. But it’s not without its flaws. People start a pension when they join an employer, but when they switch employer they often leave their old pension behind, neglected and unloved. This has created a plethora of small pension pots which are easily forgotten.

“Confirmation that government will press ahead with proposals to automatically combine the very smallest lost workplace pension pots worth £1,000 or less will help to address the issue. Although there is much more still to be done.

“At the centre of these proposals is the ability to automatically consolidate individuals’ pensions without them having to give permission. But this doesn’t have to be a foregone conclusion.

“Pension savers can opt out if they want to and consolidate their pensions in a plan that they choose themselves, offering them the features they value.”