Andy Burnhamโs Labour plots major pension change as ยฃ240m cost hits UK | Personal Finance | Finance
Millions of small pension pots could be affected by the proposed changes. (Image: Getty)
Andy Burnham’s Labour Government is plotting a major change to workplace pensions as ministers attempt to tackle a ยฃ240million annual administration bill linked to millions of small pension pots.
The Department for Work and Pensions (DWP) has launched a consultation on plans to automatically consolidate small, dormant pension pots, with the new system intended to be operational from 2030.
There are currently more than 13million deferred pension pots worth less than ยฃ1,000, according to the DWP, with that number growing by around one million every year.
The number of small pension pots is growing by around one million each year. (Image: Getty)
These small pots can build up when workers change jobs and leave their workplace pension behind. Over a working life, people can end up with multiple accounts scattered across different pension providers.
The DWP estimates the fragmented system costs the pensions industry around ยฃ240million a year in administration, with the department saying those costs are ultimately borne by pension savers.
Under Labour’s proposed Multiple Default Consolidator model, eligible dormant pots would be automatically transferred into authorised consolidator schemes.
The proposals would initially cover pension pots worth ยฃ1,000 or less where no contributions have been made for at least 12 months.
The DWP estimates around 20million small dormant pots could fall within the scope of the system when it is implemented in 2030.
Pensions Minister Torsten Bell said the growing number of small pots was a “structural inefficiency” and argued the reforms could create fewer, larger pots that are easier to manage.
He said the Government’s ambition was to have small-pot consolidation operational from 2030.
The plans follow the passage of the Pension Schemes Act 2026, which established the legal framework needed to introduce the Multiple Default Consolidator system.
The latest consultation is seeking views on how the system should operate, including which pension pots should qualify, how consolidator schemes should be authorised and how members should be informed about transfers.
The Pensions Regulator would oversee authorisation of trust-based consolidators, while the Financial Conduct Authority (FCA) would have a role in regulating contract-based schemes.
Members would also retain important protections under the proposals, including the ability to opt out or select an alternative consolidator.
A digital system would be developed to match pension pots with members and determine where eligible savings should be transferred.
The consultation opened on September 15 and runs until November 17. A further consultation is expected in late 2027 or early 2028, covering more detailed requirements and final data standards.
The Government’s current timetable points to the transfer duties coming into force in 2030, although the DWP says implementation and delivery timings remain subject to further decisions.
