State pensioners set for £1,000 boost after DWP pension change (2025)

The DWP has unveiled reforms that will see small pension pots combined (Image: Getty)

State pensioners are in line for a £1,000 boost to their retirement savings each on average thanks to a major pensions change by the Department for Work and Pensions (DWP).

The DWP has unveiled reforms to combine small pension pots to make it easier for retirees to track their pension savings. The change has been brought in to help tackle the growing problem of small, and often forgotten, pension pots that many people accumulate over their working years as they move between employers. According to the DWP there are now 13 million of these small pots, which hold £1,000 or less, and this number increases by around one million per year.

These pension pots can prevent people from getting a good return on their savings if they have to pay multiple flat rate charges, and it also costs around £225 per year in unnecessary admin costs for the pensions industry.

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As such, the DWP is introducing new reforms as part of the Pension Schemes Bill which will see people’s small pension pots brought together into one pension scheme that is certified as delivering good value to savers.

The DWP said people will still retain the right to opt in and for those who do, it will boost their pension pot by around £1,000 on average.

Minister for Pensions Torsten Bell said: “It’s great news that more people are saving for their retirement. But I want to make pension saving as simple and rewarding as possible.

“There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year.

“We will automatically bring together people’s small pots into one high performing pension, reducing costs as well as hassle for savers. In time this could boost the pension of an average earner by around £1,000 as part of our Plan for Change to put more money in people’s pockets.”

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The Pension Schemes Bill is due to be introduced in Parliament later this Spring and will, according to the DWP, benefit more than 15 million people by boosting investment and returns for savers.

Rocio Concha, Which? Director of Policy and Advocacy, added: “Which? called for the consolidation of small pots under £1,000 before the election, so we are delighted that the government is committing to doing this - a move that will provide greater value for savers and support them to keep track of their pensions.”