Small pension pots : problems and potential policy responses

The current system of private pension savings in the UK is based on employers choosing a workplace pension provider, to which contributions from the employee and employer are sent, and which invests the contributions on behalf of the employee. This means that when an individual leaves their employer (or otherwise ceases to participate in the pension), pots become 'deferred' (not contributed to) and must still be administered by the pension provider. A substantial number of these deferred pots are very small, meaning that they are expensive to administer. And when an individual moves to a new employer, it is often the case that this leads to a new pension being opened. So over a lifetime an individual could end up with several deferred small pension pots, which are therefore hard for individuals to keep track of and to manage well. This report discusses the problems with this system and the merits of different potential policy responses.