The government needs to ‘strengthen’ its proposals on small defined contribution (DC) pension pot consolidation, the Society of Pension Professionals (SPP) has argued.

Responding to the government’s consultation, the SPP said that effective implementation of the policy would be reliant on robust safeguards, reliable data, and consolidators’ ability to provide good member outcomes.

While it voiced its support for the overall objectives of reducing pension fragmentation and unnecessary administration through automatic consolidation, the SPP pointed to several areas that needed alterations to ensure the reforms worked in members’ interests.

The society recommended that pots containing specified guarantees and protections, such as guaranteed annuity rates, protected retirement ages, and enhanced tax protections, should be automatically excluded from consolidation.

It also called for an industry-developed catalogue of protected rights, consistent classification standards, and clearer regulatory guidance to reduce the risk of members losing benefits through incomplete historical records or administrative errors.

Consolidators should have to demonstrate operational capability as well as financial strength, the response continued, noting that asset size alone did not guarantee good member outcomes and schemes should be able to receive significant transfer volumes without compromising administration, service quality, or value for money.

The SPP wanted early guidance and robust operational testing to make sure that protected pension ages and other rights were preserved, as well as ongoing monitoring by the Financial Conduct Authority and The Pensions Regulator.

Member communications need to be clear and concise, the society added, to give members an understandable explanation of proposed transfers, their options, and the consequences of not taking action.

The SPP said it supported common data, matching and secure messaging standards, aligned with pensions dashboards where possible, and a proportionate approach that enabled smaller schemes to use existing providers and administrators.

“Automatic consolidation has the potential to make a positive difference by reducing pension fragmentation and unnecessary costs for savers,” commented SPP DC Committee deputy chair, Madalena Cain.

“But the SPP believes the system must be designed around scheme members’ interests, not simply the mechanics of moving pots.

“We need robust safeguards to protect valuable pension rights, a sensible dormancy period that avoids unnecessary transfers when people take time out of work, and consolidators that can demonstrate they have the operational capability to deliver good outcomes.

“Getting the detail right now through clear guidance, consistent standards and ongoing regulatory oversight, will be essential to making these reforms work in practice.”

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