The Small Pots Delivery Group has recommended a phased approach to automatically consolidate deferred pension pots of up to £1,000 with ‘default consolidators’ from 2030, with the government saying it will consult on an implementation timeline. The Pensions and Lifetime Savings Association is now tasked with a feasibility study about how to build a central data platform for this, and is expected to report back in June, in time for the introduction of the pension schemes bill. 

In 2023, the government decided automatic consolidation of the 13m small deferred pots should happen through multiple ‘default consolidators’ and apply to pots of up to £1,000. A central clearing house – now renamed ‘small pots data platform’ - will be needed for this. Which of a member’s pension pots their other savings will be merged into will be governed by a set of rules, including whether the member already has an account with a default consolidator and where their largest deferred pot is held, with a member opt-out. 

The delivery group’s report, published on Thursday, recommends the requirement should be phased in, rather than being introduced in a ‘big bang’ consolidation moment, and that the time limit for schemes transferring out small pots should be 12 months. 

The government agrees with the idea of a phased introduction but has not yet said what the staging criteria will be; instead the final decision on implementation timelines “will be undertaken through regulations subject to further consultation with industry”. 

It plans to draft regulations next year, with elements of the legislation expected to come into force during 2027-28, while duties on pension schemes to transfer and consolidate eligible pots are “likely to come into force from 2030”, according to the report. 

The delivery group cited several possible approaches to implementation: by size of the ceding scheme, starting with the largest; beginning with the schemes that hold the largest number of small deferred pots; alternatively, default consolidators could first exchange pots between them before the requirement is rolled out to all schemes.  

To become a default consolidator, schemes will already need to qualify for auto-enrolment, provide good value and protect members from flat fees. They must offer a Sharia-compliant fund, as small pots in such funds are in scope of the policy.  

Crucially, default consolidators must have a specific “scale” to manage the level of expansion expected from consolidation, but the delivery group refrained from putting down a number, saying this ties into the government’s planned size requirements for DC schemes, which could explain the 2030 timeline.
 

   

Rather than creating a new authorisation regime, the existing master trust framework will be amended to allow for consolidator supervision. 

“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,” said pensions minister Torsten Bell.  

He made a claim that automatic consolidation “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”.  

The Pensions Regulator welcomed the proposals. Gaucho Rasmussen, executive director of regulatory compliance, said: “Having lots of small pension pots erodes value and makes retirement decision-making difficult. We welcome steps to solve the problem and will support government and industry to make these plans a reality.”    

Industry stakeholders have said they are keen on working with the government on the details. Many talk about the costs of administering small pots – fees are usually percentage-based and therefore often fail to cover the cost of small-pot administration – though larger pots often cross-subsidise that cost. But providers and master trusts will also want to make sure they do not lose too much of their asset base in one stroke, not least because of the required liquidity – meaning that many will likely seek to become consolidators. 

Gail Izat, managing director for workplace and retail intermediary at Standard Life, said: “The introduction of consolidators that can administer these pots effectively and invest them dynamically will be a step forward and when combined with pension dashboards will empower people to take control of their savings. We look forward to working with government on the creation of this new system and to working through the role of consolidators and what it entails.”  

Lisa Picardo, chief business officer UK at provider PensionBee and a member of the delivery group’s tech and admin panel, said the report identifies the need for a statutory duty on schemes to consolidate eligible small pots and urged the government to move quickly to legislate and implement the proposals. 

“These are vital foundations for a more streamlined, consumer-friendly system. It is particularly encouraging to see an emphasis on robust data standards, operational readiness, and strong governance to ensure the solution delivers genuine value for money,” she said. 

Picardo added: “With the right policy, technology and national educational campaign in place, this reform has the potential to significantly improve retirement outcomes for millions of savers across the UK.” 

Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, called the 2030 start for phasing “punchy”. 

She said the delivery group was looking at what can be replicated from other projects to improve efficiency and reduce cost, pointing to the industry’s experience of preparing data for pensions dashboards. 

The dashboards project, running in parallel to small pot consolidation efforts, has been plagued by delays and cost overruns and required its own digital architecture to be created. A separate data platform now needs to be built for auto-consolidation, creating further substantial costs and complexity through the introduction of a third party into the transfer process.

The small pots delivery group found the dashboards infrastructure to be "significantly different to what would be required from the infrastructure needed under the multiple default consolidator model". Only the use of integrated service providers by pension schemes could be replicated.