Across the workplace pensions market today, there are an estimated 13 million deferred small pension pots (less than £1,000) – a number which is growing by more than a million every year and is costing the industry an estimated £240 million annually in administration costs that are ultimately paid by members. The proposals – which follow the passing of the Pension Schemes Act 2026 – lay the groundwork to implement the Multiple Default Consolidator solution by consulting on factors such as the eligibility criteria for schemes and pots within scope, the authorisations required for consolidators and new duties on employers to provide relevant information to schemes in respect of their enrolled employees.
David Pye, Head of Client Development at Broadstone, commented: “The small pots problem has been building for years and the scale of the challenge is becoming increasingly difficult to ignore. With more than 13 million deferred pots with a total value of over £4 billion already in the system and another million being created every year, automatic consolidation has the potential to make pensions simpler for savers while stripping out a significant amount of unnecessary administration and cost. The government is right to put member outcomes at the centre of the framework. Consolidation should not simply be about moving assets into bigger schemes, but ensuring savers are transferred into well-governed arrangements that offer good value for money and lay the groundwork for achieving improve retirement outcomes. “This consultation makes clear that there are important practical questions still to resolve, particularly around authorisations, data matching, member communications and the treatment of pots carrying valuable guarantees or protections. The industry will also need sufficient certainty and time to build the infrastructure required to make millions of transfers accurately and securely. 2030 may sound some way off, but creating a system capable of consolidating potentially tens of millions of pots will be a major operational undertaking. This consultation is therefore an important step in turning a long-discussed policy ambition into something that can work effectively in practice.”
Maurice Titley, Commercial Director - Data & Dashboards at Lumera said: “The scale of the small pots challenge makes consolidation one of the most significant operational exercises facing the pensions industry. With more than 13 million deferred pots worth less than £1,000, and around one million more being created each year, there is a clear need for a solution that can deliver consolidation efficiently while reducing the costs currently borne by savers. The Government's proposed federated delivery model has the potential to provide just that. By allowing schemes to continue exchanging data, carrying out matching activity and undertaking transfers through scheme-led processes, within a common framework of rules, standards and governance, it should provide an efficient and scalable model, balancing operational practicality with strong governance, and alignment with the DWP’s roadmap. When Lumera co-authored the 2025 Pensions UK Small Pots Digital Systems Feasibility Review with KGC, one of our key conclusions was that a federated model could be delivered, provided the industry established common approaches to areas including data standards, messaging standards and data matching. This consultation provides an opportunity to develop those detailed approaches further, including defining the role and responsibilities of the proposed central oversight body. The Government has reiterated its ambition 'to have small pot consolidation operational from 2030' and this consultation already gives enough direction for industry to start preparing to deliver this. Schemes and consolidators will need the data, systems and processes in place to support a federated delivery model at scale, including the high volumes of automated matching and transfers that will be required. The consultation provides an opportunity to test and refine the standards, governance and operational processes that will ultimately be needed to make consolidation work effectively for millions of savers.”
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