Govt involvement may be needed to find small pots efficiency solution

Andy Cheseldine, professional trustee at Capital Cranfield, and chair of the Small Pots Co-ordination Group, emphasised that there are 10.5m pension pots of £1,000 or less, while the Pensions Policy Institute estimated that there will be 27m pots with under £2,000 by 2035.

A mass-scale consolidation of small pots is set to be implemented in 2025-26, and industry experts have voiced concerns over the enormity of the task, Pensions Expert previously reported.

But Stephen McDonald, senior economist at Which?, said that ensuring that the efficiencies gained from the small pots consolidation will require industry and governmental oversight.

He said: “I guess it’s a big question for the government. If we are saying that there has to be some element of competition, then one of the conditions for that has to be an expectation that some of that [saving] is going to be passed through to members.”

McDonald added that if the government does not feel there is “sufficient evidence” that savers will benefit from the savings, then it “might need to try and put some kind of conditions” on providers.

Yet the most likely scenario, according to McDonald, is that there would be a series of “obligations” created on improving the overall outcomes for members.

He said that while it may not be correct to assume that all of the efficiency gains will be passed through to savers, other improvements can be made, including “better member communications” and “better outcomes at the point of decumulation”.

Hetty Hughes, manager of long-term savings policy at the Association of British Insurers, added that there is “scope for huge efficiency gains” through the small pots consolidation process, but meaningful outcomes will only be achieved if the “solutions that are put in place are also efficient to administer.”

She continued: “There is a bit of a balance to be struck — we don’t want a solution in the market that is actually greater than the cost. That’s something that we need to consider.

“Hopefully, the solution that we do eventually come to is an improved position for members and providers. I think it’s really important that we keep that balance of costs right,” she said.

Alyshia Harrington-Clark, head of defined contribution, master trusts and lifetime savings at the PLSA, said that the industry will not be able to implement “an automatic sort of consolidation solution if it isn’t found to be in savers’ best interests”.

“[I am] almost being a bit reductive, but we wouldn’t be able to do anything where it is not beneficial at the end to the saver,” she said.

“At the heart of what we’re looking at is trying to assess whether we can design, build and practically implement a solution that is in their best interest and does mean that they end up better off.”