DWP leads industry group to drive small pots consolidation
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A new group chaired by the Department for Work and Pensions will consider the design and implementation of the proposed multiple default consolidators to stem the tide of small deferred pension accounts.
The Small Pots Delivery Group was launched on Wednesday by pensions minister Paul Maynard. Chaired by the DWP, it will provide recommendations on how best to implement the proposed multiple default consolidator approach set out in a government’s consultation response last year.
It includes representatives from the following organisations:
Financial Conduct Authority
The Pensions Regulator
Pensions and Lifetime Savings Association
Association of British Insurers
Pensions Administration Standards Association
Chartered Institute of Payroll Professionals
Association of Pension Lawyers
Which?
Federation of Small Businesses
Confederation of British Industry
chair of the industry-led Small Pots Coordination Group
Pensions Policy Institute
There were about 20m deferred pots worth less than £10,000 each last year. Of these, 12.1m were pots worth less than £1,000, which amount to a combined £4.2bn.
Under the default consolidator system, a small number of authorised schemes – most likely defined contribution master trusts – will merge small pension pots on behalf of savers. A central clearing house would also be needed. In last year’s consultation, the DWP said scheme members would either choose a consolidator or be allocated one.
“Deferred small pots are costly, inefficient, and hard to keep track of. This group will help in crafting a cost-effective and efficient system, ensuring better financial security and greater value for money for millions of savers,” said Maynard.
The government claims that an average saver could be £700 better off at retirement from consolidating small pension pots.
An interim report from the new group is expected in May or June, and final proposals in late 2024, according to provider Aegon.
Auto-enrolment started in 2012, bringing millions more workers into the pension system. However, the new system was introduced without a mechanism to deal with small deferred accounts. A proposal to introduce pot-follows-member was shelved in 2015, when the freedom and choice reforms were introduced.
What should be some of the key considerations for the Small Pots Delivery Group?
