The government has confirmed that it is pushing ahead with plans to combine small pension pots in the upcoming Pension Schemes Bill, in a move that is expected to boost retirement savings for the average worker by around £1000.

The new initiative will tackle the growing problem of small, forgotten pension pots that many people accumulate as they move between employers over their working lives, after the number of small pots recently rose to around 13 million.

The announcement builds on the work of the Small Pots Delivery Group, whose findings, aimed at supporting the design and implementation of the new small pots consolidator scheme, included plans for a Small Pots Data Platform to identify and source the pension pots that could be consolidated.

The Small Pots Working Group also outlined a framework setting out the rules a scheme would need to follow to become a consolidator scheme, including safeguards for savers whose pension pots would be consolidated which include a member op-out option.

Building on this, the reforms would mean that each individual’s small pots will be brought together into one pension scheme that is certified as delivering good value to savers, although individuals will retain the right to opt out.

This is expected to cut costs for savers and make it easier to keep track of their pensions while boosting living standards and make working people better off.

In addition to this, the changes are expected to cut the red tape for businesses managing the schemes and unlock economic growth, as well as saving businesses around £225m a year in unnecessary admin costs.

The changes are also set to be a benefit for the industry, as the DWP estimated that overseeing all these small pots currently costs the pensions industry around £225m in unnecessary admin costs.

Although included in the upcoming Pension Schemes Bill, duties on pension schemes to transfer and consolidate eligible pots are not expected to come into force until 2030.

Indeed, the DWP confirmed that, following Royal Assent of the Pension Schemes Bill, it is the intention that through consultation with industry that regulations will be drafted during 2026 with elements of the legislation expected to come into force during 2027/2028.

Announcing the plans, Pensions Minister, Torsten Bell, said: “It’s great news that more people are saving for their retirement. But I want to make pension saving as simple and rewarding as possible.

“There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year.

“We will automatically bring together people’s small pots into one high performing pension, reducing costs as well as hassle for savers. In time this could boost the pension of an average earner by around £1,000 as part of our Plan for Change to put more money in people’s pockets.”

Adding to this, The Pensions Regulator executive director of regulatory compliance, Gaucho Rasmussen, said: “Having lots of small pension pots erodes value and makes retirement decision-making difficult. We welcome steps to solve the problem and will support government and industry to make these plans a reality.”

The plans have also been welcomed by Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Zoe Alexander, who 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.

“We look forward to working on delivering the recommendations of the Small Pots Development Group and are pleased the government is tackling this long-standing issue in the Pension Schemes Bill.”

The PLSA is also set to be involved in the next steps to take the initiative forward, as the government confirmed that the PLSA will lead the work on a feasibility review of the Small Pots Data Platform.

"We strongly support the need for a Feasibility Review to be undertaken, this will inform government of the key components of the Small Pots Data Platform and the necessary underpinning primary legislation," the report stated.

"This review, will provide more detailed understanding of the digital infrastructure that is required to ensure that a cost-effective solution is built, assessing what the best operating model for the Small Pots Data Platform approach and the strengths / weaknesses of different approaches."

The DWP said that the review will also provide greater understanding on the costs, benefits and risks of these delivery options, which will support the department in making decisions on the optimum delivery approach, including who is best placed to delivery this function.

It is anticipated that the feasibility review will be commenced in Spring 2025 with key findings reported back to DWP in June 2025, informing decisions to support the passage of the Pension Schemes Bill.

Bell also confirmed in the foreword of the Small Pots Working Group's report that he would look to share more timing and sequencing of the upcoming reforms in "the coming months".

"I look forward to our continued partnership with the pensions industry as we move together on this journey, to support savers to achieve the best possible retirement outcomes," he stated.

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