The Government says it will consider plans for the pensions industry to deliver a “pooling” mechanism to allow people with small pots to get a better annuity deal from insurance companies.
Speaking at a House of Lords debate on small pension funds on Tuesday, Lord John Patten called on policymakers to explore whether a vehicle could be created to combine 1.1 million pension accounts with £5,000 or less in them. The Conservative peer said the combined value of the small funds is more than £2bn.
Patten said: “It may be possible for those in the market to think of setting up a vehicle which would help, by pooling resources, to get a better deal for pensions, strictly regulated though it should be.
“Therefore I would like to put before your Lordships and, indeed, before my noble friend the minister, an idea which I hope the Government will not stand in the way of: someone trying to set up such a body whereby the purchasing power of small pension holders could be pooled and used to their advantage.”
Labour Baroness Patricia Hollis said small pension pots are “stolen” by the current system.
She said: “Low-paid, part-time [workers] – women especially, as they are in and out of the labour market – will collect a portfolio of small pots…some of which will be inaccessible to them at retirement as the situation now stands.
“Those pots will go AWOL and be inaccessible – frankly stolen from them by the structure of the pensions industry that we, all together, have constructed and inherited.”
Responding for the Government, Baroness Tina Stowell said: “The Government welcome innovations to the industry that meet the needs of consumers, so my noble friend’s idea [of pooling small pension pots] is one that we would certainly want to consider further.”