‘Good progress’ being made on small pots solutions

The Small Pots Co-ordination Group (SPCG) has made “strong headway” on developing solutions to the high number of small, deferred pension pots, according to its first progress report.

The group, convened by the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI), acknowledged the complexity of developing solutions, but stated that there were opportunities to fix the issue.

“We believe we have enough evidence to get started,” stated SPCG chair, Andy Cheseldine.

“That doesn’t mean that we are completely satisfied and there are a number of areas where we are pushing for further research. But future further research is intended to let us hone our recommendations and provide the complete evidence necessary to justify any new regulatory or legislative changes.”

Work has begun on considering the administrative groundwork needed to progress the the recommendations outlined by the Department for Work and Pensions’ Small Pots Working Group in December.

The SPCG said it was prioritising work on the feasibility of a member exchange pilot, learning from data matching and data standards experiences of pensions dashboards, alongside forthcoming research looking to identify the number of small pots held by members.

It insisted that any solutions must stem the flow of new small pots as well as addressing the existing small pots.

Solutions must work for both trust- and contract-based pensions, according to the report, but it noted that the legislation and regulators are different, and they would therefore require different approaches.

Furthermore, eventual solutions must be both provider driven and member driven, the SPCG stated, as both would be necessary to minimise member detriment.

It explained that low-cost transfers would be needed to progress consideration of small pot consolidation models.

The report also outlined progress that has been made in the consideration of future transfer processes, areas of member-initiated transfer processes where costs occur and where there are potential efficiencies, the mapping of existing data requirements, and in assessing the implications for matching protocols.

It has identified the requirement for further work on administrative issues, including how to identify and match savers with their pots, and on issues with data quality.

Regulatory changes may be needed in the future, if a cost/benefit analysis supports them, the group added.

“I am pleased to support the publication of PLSA and ABI’s SPCG report,” commented Pensions Minister, Guy Opperman.

“This report enables us to further understand the positive progress that is being made by the small pots industry group to tackle the administrative challenges of deferred small pension pots.

“I encourage the industry to continue in their efforts to understand how far they can progress consolidation solutions within the existing legislative framework.”

PLSA deputy director of policy, Joe Dabrowski, added: “Without remedy there are expected to be 27 million small pots by 2030 – an outcome which would clearly not be in members best financial interests, or support effective engagement. It is a complex problem but one that must be solved, and the sooner we can do so the better.

“The co-ordination group has made great strides in identifying the practical challenges that need to be overcome and we’re incredibly pleased by concerted effort across the industry, and ongoing support from DWP and regulators to find and enact solutions, including legislative fixes that can be applied across the sector.”

ABI head of retirement savings, Rob Yuille, concluded: “More must be done to help savers with multiple small pension pots to get the most out of their retirement savings.

“The report today outlines the work industry has undertaken over the last six months to identify ways to increase the consolidation of small pension pots and has shown that our sector can go further, exploring ways to build on our track record in improving transfers.

“This provides a good base for the next stage of the project which will include building the evidence base for future legislative changes to implement mass market automatic small pot consolidation.”

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