Small pot meaning

On 6 April 2024, the trade association warned that introducing so-called lifetime provider models risks undermining the progress already made since parliament brought in rules back in 2012 compelling employers to enrol staff automatically into workplace retirement savings schemes. In November 2023, the Department for Work and Pensions (DWP) proposed changes that would let employees keep paying into a single retirement pot, rather than automatically opening a new plan each time they switch jobs. Ministers have encountered resistance to these ideas and seem to have cooled their tone noticeably on the overall package. The proposals are intended to tackle the steadily growing number of small pension pots. Among them is a 'stapling' approach, also called pot for life, that would permit workers to remain in the first scheme they started contributing to at the outset of their careers...

Lane Clark & Peacock LLP (LCP) On 22 January 2024, Lane Clark & Peacock LLP (LCP) publicly argued proposals trailed in November 2023, enabling employees to keep paying into one lifetime retirement pot, are not the optimal fix for the growing number of small pension arrangements. The ‘pot-for-life’ approach would replace the current system in which staff automatically begin a new savings scheme whenever they switch jobs. In its response to the Department for Work and Pensions (DWP) consultation, the consultancy said these reforms are a major distraction from more urgent priorities, such as progressing recent legislation to increase automatic enrolment pension contributions. The consultation is scheduled to close on 24 January 2024. Since the government introduced rules in 2012 requiring employers to auto-enrol workers into workplace retirement saving schemes, the volume of small pension pots has increased markedly over subsequent years across workplace pension schemes...

The Society of Pension Professionals (SPP), which represents firms that advise on pensions, argued that many employees lack the specialist expertise to choose wisely when it comes to their retirement investments. In November 2023, the Department for Work and Pensions (DWP) outlined proposals for rules letting staff carry on paying into a single pension pot, rather than being enrolled into a fresh workplace scheme every time they change employer. These changes, dubbed the lifetime provider model or 'pot for life', have split opinion. However, Giannis Waymouth, who chairs the society's defined contribution committee, cautioned that the approach may bring difficulties...

Accrual rate The speed at which pension entitlement builds as pensionable service is completed within a final salary arrangement, e.g. 1/60 for each year of pensionable service. Accrued benefits Benefits relating to service built up to a given date, measured with reference to current earnings or projected future pay. A-day ‘A-day’ is the widely used term for the broad pension tax ‘simplification’ reforms that came into force on 6 April 2006. These changes followed a 2004 government policy to rationalise the British tax system as it applied to pension schemes. The objective was to cut the volume of legislation accumulated under successive administrations, folding the previous eight tax regimes into a single regime for all personal and occupational pensions. Key areas covered included: how much pension contribution was allowed; the range of schemes an individual could invest in; how much an individual could withdraw (and when); and what could be done with the remaining fund. A-Day...

ARCHIVED : This archived Practice Note examines the government’s unsuccessful 2015 effort to introduce automatic transfers of small pension pots (commonly termed ‘pot follows member’) via the Pension Act 2014. Work was paused in October 2015 and stayed on hold until July 2023, when the government formally chose to abandon ‘pot follows member’ in favour of a multiple default consolidator model to address the issue of deferred small pension pots. This Practice Note is not maintained and is provided for background information only. FORTHCOMING DEVELOPMENT : On 22 November 2023, the DWP released its response to the consultation on ending the proliferation of deferred small pension pots. The consultation aimed to gather views on an automated consolidation solution to tackle the increase in deferred small pots. The government concluded that the multiple default consolidator model is the most suitable approach to the deferred small pots challenge and has the potential to deliver greater net benefits to members by ensuring eligible deferred pots are combined within one scheme...

FORTHCOMING CHANGE : The Pension Schemes Bill, anticipated to secure Royal Assent in Spring 2026, contains, among other matters, measures allowing regulations to be made so that small inactive pension pots—those worth up to £1,000—are placed into consolidator schemes in practice. The Bill outlines who qualifies, including at least a set dormancy period and the circumstances under which a qualifying pot is treated as dormant. Further clauses oblige trustees and managers to send transfer notices that present default and alternative options to members, set parameters for exemptions where this best serves members’ interests, as appropriate, and safeguard membership rights from adverse impacts arising from transfers. One or more ‘destination proposers’ will act as intermediaries for these movements throughout the process. Clear, specified timelines will apply to giving notice and carrying out the transfers, as set out in the Bill. Additional provisions embed and oversee consolidation within the wider financial system. TPR is granted powers to authorise consolidator schemes and arrangements, and definitions clarify distinctions between consolidator types (eg Master...