Government get small pots consolidation right- almost!

Small pension pots get a “central consolidator” – payroll breathe easy!

In the blog above , I congratulated Government on taking a decision on how it intended to deal with the small pots problem. But we are still a long way off implementing that decision and before anything is put in law, we have yet more questions to answer on whether we think the DWP has got it right. Although the solution is not perfect , it is on the right track. I expect a future Government to abandon the carousel and make the implementation of the problem part of Nest’s Public Service Obligation, but the concept of a “master pot” which is fed by any pots you own worth less than £1000 is sound.

Clearing of pension contributions is not a job for payroll, nor is there proven middleware to do the job for payroll. The solution chosen is the right choice.

This is AgeWage’s response to the DWP’s consultation on ending the proliferation of deferred small pension pots

AgeWage responds to the DWP’s further consultation on “Ending the proliferation of deferred small pots”

  1. Do you agree with this proposal, or do you believe a central registry would be more effective approach to support the consolidation of deferred small pots, if so, how would you design a central registry?

We don’t think a central registry is a good idea. Ideally, we would see a pot for life culture developing with employers clearing to several providers but this would require less providers and more ambitious payroll (or clearing hubs from middleware suppliers).

Government worked out that holding data is not a good idea when scoping the Pensions Dashboards.

  1. Which, of the options we have set out, do you think is the best approach to allocate a member a default consolidator in cases where a member does not make an active decision? Are there alternatives?

We don’t see the carousel approach working. It will give rise to endless disputes both from members and from providers. Getting onto the carousel might sound a good source of new business but many small pots are, and always will be uneconomic. Nest has a public service obligation to take any employer’s covenant and we’d like that extended to taking on any small pot (with renegotiated reward to Nest). Tehre are three good reasons not to run a carousel but to use Nest as the sole default

  • Nest is a good pension, doesn’t charged on transfers in and is geared for scale
  • Nest will be an uncontentious choice – both politically and with the wider public
  • The opportunity to opt out of consolidation and consolidate with the provider of choice will persist.
  1. Do you agree that there is a need for an authorisation regime for a scheme to act as a consolidator? If so, what essential conditions do you think should form part of the authorisation criteria?

No – we have enough authorisation regimes as it is. Our suggestion that Nest is the sole consolidator would not require further choices


  1. Do you agree with setting the initial maximum limit for consolidation at £1,000, with a regular statutory review?

Yes, £1,000 should be the minimum considered – we have argued previously that the minimum could be much higher but there seems to be consensus around £1.000

  1. Do you agree with this proposal not to mandate schemes to undertake same scheme consolidation at this current time?

Yes,  the Pension Regulator’s powers under the VFM Framework would require schemes to consolidate if they failed the VFM Framework tests. In general, we are against mandating consolidation other than as a last resort.


  1. As a whole, do you agree with the framework set out above for a default consolidator approach? Are there any areas that you think have not been considered, that need to form part of this framework?

We are in favour of things getting done (we haven’t seen much getting done lately). So now we have landed on a solution, it would be good to see it implemented. We are big fans of using new technology and note the success of the Via Nova system of transferring which is widely adopted by progressive schemes and providers. We think it is Government’s job to promote best practice and we see Via Nova as just that.

We deplore the regressive anti-scamming practices being deployed by many schemes who throw red-and amber flags at the slightest provocation. We look for clearer guideline from DWP and TPR on what destinations of transfers can be considered “safe harbours”. These should build on current authorisations. As a broad rule of thumb, no provider operating a GAA or IGC should be red or amber flagged if found to be the destination of a transfer.

  1. Do you have any comments on the positive or negative impacts of a default consolidator approach on any protected groups, and how any negative effects could be mitigated?

As mentioned above, we favour a single default not a carousel. We are aware of carousels in other countries (and that Ireland is considering using one for their AE system).  Perhaps they work when there is virgin soil but we see nothing but trouble from a carousel.

What would you get from the pension’s carousel?

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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