An industry-wide approach can bring effective consolidation of multiple small pension pots and deliver greater consumer benefit than detriment, according to a new report.
Pensions UK, along with six pension providers, presented the findings of its small pots digital systems feasibility review at the trade body’s annual conference in Manchester this week.
The review showed that, as of 2023, the average UK scheme member had 1.3 pension pots, and 43% – 6.3 million – of these pots were worth less than £1,000.
The research found that, rather than waiting for the government to build a centralised ‘clearing house’ for small pots, a ‘federated’ approach should be used, similar to the pensions dashboards model but using existing infrastructure. This, the report found, would avoid a single point of failure and reduce the costs and timescale required to achieve its objectives.
“This should be a win-win situation, as small pots are costly to administer for schemes, and consolidation should deliver better outcomes for members.”
Kim Gubler, PASA
The study found that more than a million pots could be consolidated, while approximately 800,000 pots would not be consolidated.
Kim Gubler, chair of the Pensions Administration Standards Association, said that while the review was an exercise in technical implementation, the objective was far more fundamental.
“This is about people and ensuring these tiny pots become meaningful in order to produce meaningful retirement income,” she said. “This should be a win-win situation, as small pots are costly to administer for schemes, and consolidation should deliver better outcomes for members.”
The study is now going to be handed to the Office for National Statistics for broader research purposes, and additional providers are being asked to join the process in order to refine the approach.
Gubler added that, while there were still many questions to be answered, the review’s findings were positive as it showed the solution is feasible and can be delivered.
The sample of anonymised data from the providers covered 20.6 million members of a 26.7 million auto-enrolment population. The companies that provided data and support to the feasibility review were Legal & General, Nest, Now Pensions, The People’s Pension, Smart Pension, and TPT.
