Master trust Now: Pensions says the government should set up a taskforce to solve the problem of small pension pots.
It argues the number of small pots is growing and could undermine auto-enrolment unless addressed in the near future.
The scale of the problem is examined in Pension Policy Institute research released today that is sponsored by Now: Pensions.
It estimates there will be up to 27 million deferred pots in master trusts by 2035 and the market will become unsustainable without government intervention.
According to Now: Pensions there are already 10 million small deferred pots, costing £130m a year in administration.
The PPI report explains every active member in an AE pension is supporting one inactive member.
But by 2035 each active member will be supporting more than three inactive members.
It is estimated the bill to service these 27 million small pots will be £1.5bn a year by 2035.
Now: Pensions is calling for a small pots taskforce, formulated from government, regulator, industry and consumer groups.
It believes the taskforce should be formed by the end of the year and deliver a proposed solution by the end of 2021.
Some proposed solutions include pot follows member, member exchange, default consolidator, carousel consolidator and dashboard.
Now: Pensions director of policy Adrian Boulding says: “The PPI work has revealed no single magic bullet will provide an immediate fix for problem of small pots. There are merits and drawbacks to all the solutions on the table.
“Until the issue of small pots is resolved, the cost of small pots must be paid for in some form. We welcome the government’s recognition that a complete ban on flat fees could eliminate competition in the market and force up fees for savers. To pull the funding of small pots by changing the charging structure will destabilise the market.”
Now: Pensions chair of trustees Joanne Segars adds: “The proliferation of small pots is not good for members: they cannot benefit from economies of scale; easily lose track of their deferred pensions; and face multiple charges on each pot – for administration, benefit statements and levy charges, for example. This all eats away at their final pension pot.
“The solution has to be to help members join up their pension pots. This needs careful and co-ordinated thought, and it is something we must now collectively tackle to ensure the best outcomes for members.”