Our conclusion was yes. We concluded an industry-delivered, federated model, using open standards, common messaging and much of the knowledge developed through pensions dashboards, offered a practical route forward. It wouldn’t require a large new central infrastructure. Schemes, consolidators and their providers could undertake much of the activity themselves, provided they operated within common standards and strong governance.

The DWP’s latest consultation takes us considerably further down this road and, importantly, restates the ambition for small pots consolidation to become operational from 2030. The digital infrastructure proposals are closely aligned with much of the work we undertook. That’s encouraging, but it also brings the next set of questions into much sharper focus. The question is moving on from whether this can be done to how we can collectively make it work.

More than just a technical challenge

It’s tempting to look at small pots primarily as a technical challenge. There’s certainly plenty of technology still to develop, but the opportunity is much bigger. If we get this right, small pots could become an important part of a much more connected pensions system, including for many of the people least likely to actively engage with their pensions.

I don’t think people with small pots would object to being paid a pension from a consolidated pot or from a collective pension.

This is an important distinction from pensions dashboards. Dashboards give people a way to find and see their pensions, but they still require an individual to choose to use one. Small pots consolidation is designed to operate largely behind the scenes, identifying eligible pots and bringing savings together without relying on the member to initiate the process.

Our review identified this fundamental difference. Dashboards are a user-led, consent-based service, while small pot consolidation requires business-to-business activity without individual consent. This was one of the reasons we concluded the dashboards infrastructure itself couldn’t simply be repurposed, although the experience, standards and industry capability developed through dashboards give us a considerable head start.

The consultation has also moved some of the technical thinking forward in a helpful way. One example is messaging – how schemes and consolidators will communicate with each other in this federated model. The requirements here are two-fold: an agreed standard for providing the necessary information within a message, and a secure network for transmitting those messages that’s available to all participants.

It is quite possible that by 2030 CDC pension schemes will rival DC workplace pensions in terms of numbers building up a pension and if transfers become standard, CDC could become participants.

When it comes to agreed standards, the consultation proposes a central oversight body will approve and maintain standards over time, and gives a nod to how existing standards built around ISO 20022 could fit the bill, as we noted in our Review.

When it comes to message transmission, the consultation states while the oversight body could approve or specify requirements participants need to meet, the government is clear it won’t mandate a specific commercial solution. This preserves room for the market to innovate and avoids hard-wiring a commercial provider into regulation.

In other words, a Collective CDC pension should not be avoided but included as a recipient of small pots for members of CDC schemes.

There’s still detail to resolve, particularly if more than one messaging approach is approved. Interoperability matters: a federated ecosystem only works if participants can communicate reliably with every other participant they need to reach.

It is up for CDC schemes to learn fast but they start afresh and have no legacy to deal with

The attraction of a federated model

The proposed digital interface raises a related question. We envisaged something closer to a governance register – an authoritative source of information about who is entitled to participate, their relevant technical details and the standards they meet.

The consultation goes further in asking whether the interface should issue or enable security credentials, certificates, keys or tokens. There may be good reasons for doing so, but care is needed not to recreate centrally functionality and standards already provided by whichever secure messaging approaches are ultimately approved.

The attraction of the federated model was never an absence of central governance. It was avoiding unnecessary central infrastructure while allowing the industry to use established and emerging standards and technology effectively.

Administrators involved in CDC will have been chosen to be technologically advanced. They can build to the needs of the model chosen.

Data

Data will be just as important as technology. The proposal to require employers to request personal email addresses and periodically update key member details is particularly interesting. A reliable personal email address potentially has value far beyond small pots. Unlike a work email or postal address, it can remain with an individual as they move between employers and homes and could help schemes maintain a connection with members over many years.

There are surely other ways to verify identity of pension savers.

There’s a balance to strike. Employers already have significant AE responsibilities and the new requirements need to work through normal payroll and enrolment processes rather than create another parallel reporting regime. Schemes and master trusts will inevitably have an important role in receiving and maintaining the data, but they shouldn’t become the de facto enforcement mechanism for employer compliance. Done well, however, this could leave a useful legacy: better personal data across the AE population, with benefits well beyond small pots consolidation, not least more effective matching for those who do engage with pensions dashboards.

Member choice without complexity

Member choice needs equally careful thought. The policy quite properly preserves the ability to opt out or choose an alternative consolidator.

We have no perfect idea of the impact that the pensions dashboard will have on people but it is likely it will encourage more people to take decisions when confronted by their dashboard of their small pots expressed as pensions.

The detailed design now needs to establish what meaningful choice looks like without creating unnecessary complexity. For example, if somebody actively chooses a particular consolidator, should this preference have any relevance when another small pot is subsequently identified elsewhere? Technically it could. Whether it should is another question.

Recording and maintaining a persistent preference introduces questions about where it sits, how long it remains valid and how the individual changes it. Sometimes the simplest system is the one which doesn’t attempt to remember more than it needs to.

These are important design questions, but arguably the greatest delivery challenge sits outside the small pots architecture itself. Small pots won’t arrive in isolation. By 2030 the DC market is expected to look very different and several government policies have to move forward together if the timetable is going to work. Scale should mean fewer, significantly larger arrangements. Value for money will influence which arrangements can become consolidators. Contract-based pensions are intended to participate alongside trust-based provision.

This list could be supplanted with CDC multi-employer workplace schemes.

Each policy changes the environment in which the others will operate, for example Guided Retirement should deliver better outcomes when members have less fragmented pots. Government itself says key policy decisions are needed now to allow sufficient time for industry preparation, development and testing, with a further consultation on ceding-scheme duties, final data standards and delivery planned for late 2027 or early 2028.

Sequencing is therefore critical. A delay to one part of the reform programme doesn’t necessarily remain contained within that policy. If the future population of consolidators isn’t sufficiently clear, investment decisions become harder. If the shape of the market changes later than anticipated, the population needing to connect changes. If final standards arrive too late, the time available to build and test reduces. The 2030 ambition is achievable, but only if the years between now and then are treated as delivery years rather than policy years.

As the proprietor of a CDC scheme looking to deliver in 2027, I have ambition to offer the capacity to offer our scheme as a participant in the small pot consolidation project.

Capacity

There is also a practical capacity issue. Anyone who has been involved in transitioning a large pension scheme knows how much work it consumes. Government policy envisages significant consolidation across the DC market before small pots begins, while the industry will simultaneously be delivering new systems, data work and operational change. Much of this will call on the same schemes, administrators, technology providers and, critically, the same relatively small pool of experienced people.

We can’t simply do more of what we do today at a much greater volume. There isn’t enough capacity, either in people or technology. If the market is going to consolidate on the scale envisaged while the infrastructure for small pots is built alongside it, existing approaches to transition, data movement and implementation will have to change too. This isn’t an argument for slowing down. It’s an argument for thinking differently about how change is delivered.

Here capacity can be expanded by adopting new technology, we all know the two letters that drive change.

This is also why we remain optimistic. The pensions industry has already demonstrated through dashboards what can happen when government, regulators, schemes and technology providers work towards a common destination. In our feasibility review we noted how quickly a competitive connection market developed and how existing industry capability could be adapted rather than replaced. Small pots asks us to apply some of this learning to a different problem and, potentially, to go considerably further.

If we get it right, the prize isn’t simply fewer £500 or £1,000 pension pots and lower administration costs. We have an opportunity to take a significant step towards a pensions system which does more of the work for people, connecting them with their savings rather than expecting them to navigate an increasingly fragmented history of employment and pension provision themselves.

Whether DC or CDC, the means to turn small pots to pensions is arriving and will be hear before 2030

For many of those people, a pensions dashboard may never be something they choose to use. Small pots consolidation can still make their pensions work better for them. The technology to make this possible is feasible. The more interesting challenge now is how government and industry use the next four years to turn a collection of interconnected reforms into a genuinely more connected pensions system.

Maurice Titley is commercial director at Lumera and Kim Gubler is managing director at KGC Associates