In its response, the SPP explains that it supports the Government’s objective of reducing pension fragmentation and unnecessary administration through automatic consolidation. However, it highlights several areas where changes are needed to ensure the reforms work in savers’ interests.
For example, the SPP recommends that pots containing specified guarantees and protections, including Guaranteed Annuity Rates, protected tax-free cash rights, enhanced tax protections and protected retirement ages, should be automatically excluded from consolidation. It also calls for an industry-developed catalogue of protected rights, consistent classification standards and clearer regulatory guidance to reduce the risk of members losing valuable benefits through incomplete historical records or administrative errors.
The response also stresses that consolidators must demonstrate operational capability as well as financial strength. Asset size alone cannot guarantee good member outcomes - schemes must be able to absorb significant transfer volumes without compromising administration, service quality or value for money.
The SPP calls for early guidance and robust operational testing to ensure protected pension ages and other rights can be preserved, alongside ongoing monitoring by the Financial Conduct Authority and The Pensions Regulator.
The SPP also urges the Government to keep member communications clear and concise, giving savers a straightforward explanation of proposed transfers, their options and the consequences of taking no action. It supports common data, matching and secure messaging standards, aligned where possible with pensions dashboards, and a proportionate approach that allows smaller schemes to use existing providers and administrators rather than incur unnecessary infrastructure costs.
Madalena Cain, Deputy Chair of the SPP’s DC Committee, said: “Automatic consolidation has the potential to make a positive difference by reducing pension fragmentation and unnecessary costs for savers. 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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