We need courage not legislation – to sort out small pots


Courage in adversity


Dress it up as the industry may, the progress report of the Small Pots Working Group is a disappointment. The Group was set up to find a working solution that commanded consensus from the ABI, PLSA and the key participants offering workplace pensions, it has failed to do this.

After three years it has reached this  conclusion.

“A whole of market solution must also include those pension pots in contract-based schemes, and transferring these pots ordinarily requires the consent of the owner. It is therefore the view of the industry representatives that this will require legislation”

The conclusion from the key participants is that the various solutions under consideration since the first report in December 2020 are all too hard. A super consolidator would be an administrative mess and no one could agree on one provider to lead on this. Nest would have been the obvious candidate, but Nest seems to have pretty well withdrawn from the Group.

The pot follows member idea and the default consolidator model, both have push and pull variants, and both could work – were it not for a failure among providers to put the common good above individual provider considerations.

Most disappointing of all, the “member exchange” pilot, for which many had high hopes appears to have disintegrated into a feasibility study between NOW and Smart Pensions. People’s Pension apparently withdrew from the pilot because they coveted their exclusive protected normal minimum retirement date, Nest claimed it could not do bulk transfers and Cushon, who are now rivalling Smart and NOW in size do not appear to have been involved. As for the insurers and the ABI, they do not appear to have come to the table.

Like with the Pensions Dashboard, the industry made a promising start and like with the Pensions Dashboard, it soon got caught up in the detail. The visionaries got subsumed by the concept of “potential member detriment”, while those in charge of the commercials for all the major players saw compulsory pot consolidation as a risk rather than an opportunity.

No doubt the pensions industry will take pride in the latest numbers from the ONS that show shows an increase in overall DC membership by just over 1 million members over the quarter to 31 December 2021. This increase brings total DC membership number to 26.7 million.

However, if you dig a bit deeper in the numbers, you can see that the driver of this 4 per cent quarterly increase has predominantly been an increase in deferred members rather than active members, with respective increases of 6 per cent and 2 per cent. These figures highlight both the success of auto-enrolment in increasing membership, but the rising problem of small DC pots and the consolidation ‘nettle’ that the government and industry is going to have to grasp.

The problem is focussed on a small group of providers with huge numbers of  small pots on which they have to pay levies that will ultimately make them unprofitable unless they put up their prices. Consumers will continue to struggle with “small pot fatigue” and will inevitably over pay for unnecessary administration , disclosure and regulation. The Government is now back with a problem that it thought it had outsourced and without any legislative window, it is difficult to see small pots being properly addressed this parliamentary term.

This is a dark day for the PLSA, ABI and the pot providers. They may blame the DWP for handing them a poisoned chalice but the DWP will rightly point out that this was a problem they set out to solve for themselves – and failed. Consumerists have every right to be disappointed, this shows an inability of pension providers to solve a complex problem with energy and pragmatism.

Having started out boldly, the next steps are so cautious it is hard to see consolidation happening at all.

The Group hopes that the outcome of the next phase will prioritise a model (or models) to take forward and make progress on understanding what changes are needed to implement it.

All that appears to have happened since the last report is a lot of jaw-jaw, set out as a smokescreen in endless tables, flow diagrams, risk analysis, and considerations of parallel initiatives all of which adds up to the square root of anything.


None of this work has more than passing relevance to the aims of this project which are very simple, to improve outcomes by consolidating people’s pots. All of these workstreams are no more than excuses for inactivity and temerity from the working group.

Let’s be clear, bulk transfers of deferred member rights between occupational schemes is legal and happens all the time. It is how the occupational DC market is consolidating. Member consent is not required, there is simply a requirement to get on with things. 

So why does the working group now need legislation.?

Let me be the first to challenge the reasoning behind this admission of failure. The group claims legislation will be needed to:

compel all in-scope schemes and providers to take part in implementing the preferred solution

Why should compulsion be necessary when it is in the interests of a small group of commercial providers to reduce small pots (the report suggests that not doing so is too awful to contemplate).

So what if only a few providers agree to participate? Wouldn’t it be more painful to be excluded than included in the program? All the evidence from successful data sharing exercises is that those who stay outside are those who suffer. We do not need a “whole of market solution”, we just need free-flow of small pots between a few master trusts with the option for other schemes to join the venture as it suits them.

To enable contract-based providers to carry out transfers without member consent and to broaden the scope for transfers without consent from occupational pension schemes

This idea appeared in the ABI’s recent blueprint for moving AE along. It is an absolute non-starter. Trustees have always had the power to do bulk transfers, GPPS are a collection of individual policies owned by individuals, there is no power to bulk consolidate or even individually consolidate personal pensions without member consent. If insurers are holding out for this to happen, then it is hardly surprising the project has ground to a halt. We do not need a whole of market solution to include personal pensions, much as the insurers would like it.

Define the deferred pots and schemes in scope

Pick a number between £100 and £5,000 and get on with it

Set standards to identify eligible receiving schemes

Simple – the master trust assurance framework provides the standard

Define the liability model for trustees, providers and others involved in the relevant processes

The sweat on the brows of the risk officers at the thought of doing something as radical as small pot consolidation is evident in every word of this sentence. The DWP should make it abundantly clear that it will stand foursquare behind the consolidation project and provide master trusts and any other trustees who participate in bulk switches which have clearance from tPR, with safe harbour status. This does not need legislation; it needs a regulator with courage and providers acting with conviction.

Bulk transfers of deferred members of occupational schemes have been going on for decades. They are key to the consolidation process, small pot consolidation is just a part of this,

Let’s remind ourselves, in the words of this report – that there is a cost of delay which exceeds any member detriment from the proposed solutions under consideration. In the words of the report

The longer this issue takes to resolve, the greater the number of small pots that will need to be moved and the greater the risk that savers will experience sub-optimal outcomes.

Cross industry constipation

I feel sorry for the committee’s chair Andy Cheseldine and for Adrian Boulding,  the driving force behind the small pots working group. They have been swamped by vested interests, they cannot be blamed for the neutering of what was once their dynamic venture.

Tellingly, the report is accessible off the ABI website and it lands days after the ABI’s blue print for AE (which I found equally self-serving). Since when has the insurance industry had control of the occupational pensions agenda? How can the Minister for Pensions give them the red card so decent people  can get on with helping consumers, rather than themselves?

My recommendations to the Group are

  1. Get the trade bodies out and return the project to the commercial entities that have most to gain by getting this sorted out.
  2. Nest must play a central role and it must be enabled to do bulk transfers.
  3. Providers should be able to operate in a safe harbour as a result of clear support from tPR and the DWP’s policy unit.
  4. New blood be introduced to the group.
  5. The objective of the group be clear – industry driven solutions within the current legislative framework.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to We need courage not legislation – to sort out small pots

  1. John Farrington says:

    The key indicator of success/growth of the system is the number of members, but Funds can only count Accounts. Auto consolidation for small accounts should be easily justified because of a “greater good” or “better off overall” test. It just shouldn’t be that hard.

  2. henry tapper says:

    Thanks John, we need a bit of Aussie Common Sense here! “For the greater good” means accepting that for some, the changes will lead to worse outcomes. But we live with these things in all aspects of life and UK pensions have many examples where we accept that not everything is perfect – we know for instance that many get their state pension paid at the wrong rate, but the cost of sorting that out cannot be justified. The principal of proportionality is really important

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