Small pots: Will auto-consolidation go ahead? 

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It is “essential” to create a mechanism that automatically combines small pension pots into a bigger pot, the chief executive of master trust Now Pensions has said, after a recent report argued it cannot be done without legislation. 
 
By the end of this year there are likely to be more than 11m small deferred pension pots which risk being forgotten about by savers, eroded by fees and expensive to administer for providers that charge a percentage-based fee.   
 
“It is essential that an automatic consolidation solution is found for those savers who change jobs frequently and leave their small pots behind,” said Patrick Luthi, CEO of Now Pensions, adding: “It's important that these savers are at the heart of the solution, so their pensions savings are combined in a place where they can continue to grow for their future retirement.” 
 
Now Pensions is part of the Small Pots Co-ordination Group, led by the Association of British Insurers and the Pensions and Lifetime Savings Association, which has effectively been tasked with finding an industry-wide solution to the small pots problem.  
 
Luthi made the comments in response to the group’s recently published Spring 2022 Report, which called for legislation to allow consolidation solutions to go ahead.  
 
   

Will government change its stance on legislating? 

 
At an event last month, chair of the Pensions Administration Standards Association Kim Gubler said the government was unwilling to legislate or provide regulations, or to create a big centralised consolidator, resulting in the consensus model of three options: ‘pot follows member’, multiple default consolidators and ‘member exchange’, with the group saying that a combination of these models could be used.  
   
   
Despite aiming for a solution that does not require legislation, the group has now concluded that this will be necessary for several reasons. For example, the industry representatives believe that compulsion will be required for auto-consolidation. T; this is because the change in minimum pension age from 55 to 57 means some members might be giving up protected pension ages when moved to another scheme, so trustees would be unlikely to consent to bulk transfers without a legal obligation. The group also said contract-based pensions should be included in any consolidation solution but that these normally require individual consent from the scheme members. 
 
The group said legislation will be needed to: 

 
 Will government agree to legislate for small pots consolidation?
Kim Gubler
David Bird
Stefan Lundbergh
Joanne Segars
Tim Gosling
Andrew Cheseldine
 
 

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