Automatic enrolment has extended workplace pension coverage to the mass market, including young people and low earners - many for the first time. In 2019/20, it was estimated an extra £18.8 billion per year was being saved into workplace pensions. But this has also led to a rise in small pots, often formed during brief stints of employment,  which means savers may not experience the best possible outcomes.

It also means small pots could be lost or left deferred and slowly eroded due to pension scheme charges.

Ministers say that without change, it is feared millions of pots could be lost over the coming decades.

Modelling by the Department for Work and Pensions in 2012 estimated that automatic enrolment was expected to create around 50 million dormant pension pots by 2050.

Minister for Pensions Guy Opperman said: "Given the risks that the growth of small pots presents to savers and their ability to plan for retirement, it is vital that we find a solution.

“Savers deserve to know that their hard-earned pension pots will be working for them through their career and ready for them when they retire.”

The recommendations include the continued development of options to consolidate small pension pots at the request of savers.

Saver requests will, however, need to be complemented by automatic large scale transfers and consolidation with an opt-out solution, to address the growth of small pots.

Solutions involving consolidating pension pots are expected to start with the pensions industry investigating and addressing administrative challenges, including how to enable the transfer of large numbers of small pots easily.

This work will complement plans to introduce pensions dashboards, which will allow individuals to keep track of their small pension pots more easily, helping them to better plan for retirement.

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Comment by Guy Opperman, Minister for Pensions

Think back to the number of jobs you have worked in recent years - have you worked for more than one employer or business? If so, there’s a very high chance you have money in what we call “deferred pension pots”.

These pots are the pension contributions automatically made by your employer and you, often benefiting from tax relief, that were required by law from 2012 onwards – unless you consciously chose to opt out.

This scheme, known as automatic enrolment, has been a major success with more than 10 million eligible workers enrolled into a pension since it began.

However, it has also led to the rapid growth of small deferred pension pots. Primarily driven by brief stints in employment, we estimate that automatic enrolment could create around 50 million dormant pension pots by 2050.

With this challenge in mind, I established a Working Group in September to assess and make recommendations on ways to tackle the growth of these pension pots.

It is only right that savers see the full benefit of their workplace pension savings. Consolidating these deferred small pots ,that build up in the automatic enrolment market, is a key part of this– but it will take time to develop and implement effective solutions.

The first stage is for pension providers to investigate and tackle administrative challenges, including how to enable the transfer of large numbers of small pots easily.

We’re committed to finding a solution which ensures savers get the most out of their hard-earned pensions and can enjoy the retirement they deserve.