Legislation on default consolidation of small DC pots to be included in forthcoming Pension Schemes Bill

The DWP has confirmed that primary legislation enabling the introduction of a default consolidator model for small DC pension pots (up to £1,000) will be included in the forthcoming Pension Schemes Bill expected before Parliament’s summer recess.

A report on the consolidation proposals, written by the Small Pots Delivery Group, has been published and includes recommendations on the design and implementation of a multiple default consolidator model, together with the Government's response to the 2023 consultation on “Ending the proliferation of small deferred pots”.

The report sets out some of the detail on how the small pots consolidator is expected to work:

• A multiple default consolidator approach will be introduced, with a range of schemes being authorised as consolidators.
• Where a saver has chosen a consolidator it would be used. Where no choice has been made, if a saver already has a pot in a consolidator, further pots would be allotted to the same scheme. Otherwise, pots will be allocated to a consolidator on a carousel basis, meaning each authorised consolidator gains an equal proportion of deferred pots for members in this category.
• An approach using a Small Pots Data Platform acting as a central hub (“clearing house”) has been decided on and this will facilitate the allocation of pots to a consolidator. However, member communications will not be undertaken by the new central platform. These will be the responsibility of the transferring and receiving schemes.
• The Government will consider whether any of the pensions dashboards infrastructure and processes could be duplicated by consolidators, although the two systems will remain separate.

After the Bill has received Royal Assent, the Government intends to consult on draft regulations implementing the default consolidator model in 2026, with elements of the legislation expected to come into force during 2027/28. Duties on pension schemes to transfer and consolidate eligible pots are likely to come into force on a staged approach from 2030.

While there is a great deal of work to do before small pot consolidators will be operational, eventual consolidation of small pensions pots should cut administrative costs for savers, make it easier to keep track of multiple small pensions and boost living standards in retirement.