DWP consults on small pots consolidation
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The Department for Work and Pensions has launched a consultation on how to implement the automatic consolidation of currently around 13m deferred small pots through default consolidators. The nine-week consultation closes on 17 November.
The consultation ranges from how consolidator schemes will be authorised, to the digital infrastructure that will underpin the model.
“These are big decisions, and they must be taken with one principle at their heart: what is best for members,” said pensions minister Torsten Bell. “Our ambition is clear: to have small pot consolidation operational from 2030.”
The DWP proposes, as previously suggested, that to be eligible for consolidation a pot must have received no contributions for a period of at least the last 12 months and have a value of up to £1,000, managed by a large auto-enrolment scheme. The department estimates that this will bring roughly 20m small dormant pots into scope by 2030.
Schemes will be expected “to take account of relevant information, potentially provided by employers” to temporarily exclude pots that meet those criteria but where members have paused contributions for longer periods but are expected to resume saving, “for example, during extended parental leave, planned career breaks, or periods spent overseas”.
Savers will also be able to opt-out of consolidation if they know they intend to return to saving into that pension pot after exceeding 12 months of inactivity. Members who do not “implicitly accept the default proposal without engagement” are offered to make two decisions, whether to opt out of consolidation and, if they do not opt out, whether to accept the default consolidator or select an alternative consolidator scheme.
Pots created before auto-enrolment was introduced will not be covered by the policy “initially”, nor will self-select investment arrangements, as they are considered to be more engaged than the targeted group.
Sharia-compliant funds will also initially be excluded to allow for information gathering on their scale and characteristics.
A second DWP consultation is planned for late 2027 or early 2028. This will consider detailed requirements for ceding schemes, the supervisory approach and finalised data standards among others. The approach to implementation and delivery timelines will be revealed "in due course".
The government's current roadmap suggests the response to the first consultation is due between April and June next year, along with consultations by the Pensions Regulator and Financial Conduct Authority being published. Draft regulations are expected in 2028 and laid in parliament in 2029, according to this plan.
A second DWP consultation is planned for late 2027 or early 2028. This will consider detailed requirements for ceding schemes, the supervisory approach and finalised data standards among others. The approach to implementation and delivery timelines will be revealed "in due course".
The government's current roadmap suggests the response to the first consultation is due between April and June next year, along with consultations by the Pensions Regulator and Financial Conduct Authority being published. Draft regulations are expected in 2028 and laid in parliament in 2029, according to this plan.
