Background

The DWP published a consultation on 15 September 2026 setting out its proposals for the automatic consolidation of deferred small pots through the establishment of multiple consolidator schemes (the “solution”). This is intended to help tackle the increasing number of deferred small pots across the pensions system.

We also responded to the DWP’s July 2023 consultation on ending the proliferation of deferred small pots (the “2023 consultation”, see our response here) and its January 2023 call for evidence (the “2023 call for evidence”, see our response here).

In this response

General comments

  1. Need for a streamlined, proportionate system

As we emphasised in our response to the 2023 consultation, we are very supportive of attempts to resolve the issue of deferred small pots and we recognise the work that has been undertaken to date to develop the policy proposals.

In order to achieve the aims of reducing fragmentation, improving efficiency and supporting a better functioning pensions market in the interests of savers (paragraph 5 of the consultation), it is vital that the solution is as streamlined as possible to reduce the burden on transferring schemes and minimise costs. A theme running through the consultation is the need to balance “system-wide efficiency with member protection” (paragraph 7). In some areas of the policy proposals, we think the balance has tipped disproportionately towards member protection and this could be redressed without losing important guardrails. We discuss specific areas where this arises in more detail below.

  1. Burden of discretionary transfers on the transferring scheme

Making small pots transfers discretionary where there is any type of guarantee or protection would place a significant burden on both the trustees and administration systems of transferring schemes. While some schemes may be able to apply “group level” assessments (as suggested in paragraph 51), we expect many, if not most, decisions would need to be made on a case-by-case basis, supported by legal and/or actuarial advice. Inevitably, this would require schemes to redirect resources from other areas and potentially increase costs for their wider membership.

Adding to the complexity of the decision-making process, we assume that trustees or scheme managers would not necessarily know, at the point of making the decision to transfer, which destination consolidator scheme would receive the small pot(s). This would make it impossible to compare, for example, specific charging structures, so the basis on which trustees or managers would make the decision is unclear.

We can see that an element of discretion might be more appropriate for larger pots, if the size limit were to be materially increased in the future. But based on the current proposals, our view is that the discretionary decision-making process suggested in the consultation could not be carried out in a way that is proportionate to the value of the pots concerned.

A way forward might be for legislation to set out how small pots with certain guarantees and protections should be treated for the purposes of consolidation. It would also be helpful for legislation to ensure that protections, for example protected pension ages (PPAs), are preserved on the transfer where appropriate (see our response to question 4 below). As well as removing some of the burden from the transferring scheme by streamlining the process, this would also enable more pots to be consolidated. Member choice would be preserved through the notification process and the statutory transfer process.

It was announced at the Budget 2026 that, to support DC consolidation, legislation will be introduced to expand the circumstances when a member may keep their PPA or lump sum protection following a transfer.[1] We encourage the Government to ensure these circumstances will include small pots consolidation.

  1. Discharge for transferring schemes

The current policy proposals and legislative framework do not seem to envisage a statutory discharge from liability for the transferring trustees / managers. As the DWP noted in a February 2018 consultation response, such a discharge “tends to only be required where statute requires the trustees to do something that is not provided for in the scheme rules”.[2] On that basis, the current legislation enabling transfers without member consent,[3] which is permissive, does not provide transferring scheme trustees with a discharge.

As trustees / managers will be required to implement the statutory consolidation process and it will override scheme rules, our view is that. where they comply with these obligations. they should be protected by a safe harbour, perhaps coupled with a statutory discharge where an internal or external transfer is made.

As noted above, we would encourage the Government to keep trustees’ and managers’ discretion in relation to the solution to a minimum but, where it remains, they should still be covered by the safe harbour and / or a statutory discharge.

Without such protection, transferring trustees / managers are more likely to apply a cautious approach in relation to any discretion. This could slow the pace of consolidation and leave unnecessary fragmentation in the system.

  1. Timing of member communications

We acknowledge that the Pension Schemes Act 2026 requires the small pots regulations to specify details of the “transfer notice” requirements. However, in line with the approach suggested in our comments above, to remove as much friction from the process as possible we wonder whether the transfer notice could be sent by the consolidator scheme confirming the transfer has taken place, subject to dealing with guarantees and other protections (see our comments on chapter 3 below), an appropriate discharge for transferring schemes (see our general comment 3 above), and protecting members’ right to transfer elsewhere if they wish.

For new pension pots going forwards, the automatic enrolment information requirements could be amended to include a warning at the enrolment stage that if the member does not engage with their deferred pot after 12 months (or the relevant amount of time), and it is worth less than £1,000, the pot will be automatically consolidated.

  1. Phasing

It is encouraging that a phased approach to implementation of ceding scheme duties is anticipated, and we note that the DWP plans to explore this further at a later consultation (paragraph 8 of the consultation). As an estimated 20 million small pots will be in scope at the point of implementation in 2030 (paragraph 27), there may be a risk of overwhelming the system if the requirements to consolidate are introduced across the whole range of pots in scope in a short space of time.

The phasing will need to be adapted to the DC pensions landscape at the time the solution is introduced, as other policies including the new scale threshold for main scheme default arrangements, guided retirement and VFM, as well as voluntary consolidation by pension schemes, will have begun to shape the market.

Responses to questions

CHAPTER 2: POT ELIGIBILITY AND EXEMPTIONS

Question 1: Do you agree with the proposals set out in this chapter? Are there any unintended risks or consequences that may arise from these proposals outlined above?

In addition to the points raised in our general comments above, we are concerned that the member opt-in proposal (paragraph 58) could introduce further complexity and risks increasing administration costs. The proposed notice would need to set out the nature of their guarantee or protection and the implications of consolidation. Guarantees and protections are complex and it can be challenging to communicate these clearly to members in a concise way. As the small pots policy is targeting a population of largely disengaged members, this adds to the communication challenge and means that members may be ill-equipped to make an informed decision.

To benefit from the advantages of consolidation for individual members and the wider pensions system, consolidation should be as “automatic” as possible. Please also see our responses to questions 2, 3 and 4 below.

Question 2: Can schemes reliably identify pots that have guarantees attached? Are there operational or administrative risks that could threaten the effective retention of guarantees for members. For example, data quality?

In our experience, there may be cases where schemes cannot reliably identify pots that have particular guarantees or tax protections due to incomplete scheme records or a lack of member engagement (eg members failing to declare a tax protection).

Question 3: Are there any guarantees or protections that should automatically be out of scope from trustee and scheme manager discretion?

Please see our general comments and responses to questions 1 and 2 above. To the extent possible, the solution should be truly “automatic” for pots in scope, with any requirement for transferring scheme discretion removed (subject to our comment regarding it potentially being appropriate for larger pots). We suggest that the Government considers:

  • expanding legislative protections to ensure that certain guarantees or protections are retained where a small pot is consolidated (for example in the case of PPAs – see question 4 below, and scheme-specific lump sums – see question 5 below), or
  • where the Government feels that a guarantee or protection could be sufficiently valuable that consolidation is not justified, those pots be specifically excluded from automatic consolidation, remaining subject to the existing legislation governing transfers without consent and statutory, member-initiated, transfers.

In our view, the solution should require schemes to decide whether to make discretionary transfers as a last resort where the Government considers the options above are not possible or appropriate.

Question 4: How frequently does the situation arise where preservation of a PPA must be considered? Do you think the proposed approach would work administratively, or is there a better way of achieving the same outcomes for members?

As the DWP suggests, PPAs are a common type of tax protection and it is standard practice to consider the impact on PPAs on any transfer without consent. Given the types of small pots in scope (see our comments at question 5 below), we expect that in most cases where a PPA applies it will be a PPA of age 55-57.[4]

We support keeping pots with PPAs in scope of automatic consolidation. However, in line with our general comment and responses to earlier questions, we do not think it is proportionate for trustees and scheme managers to have a discretion to exempt pots where a PPA cannot be preserved. In particular, since the transferring scheme may not know the destination consolidator scheme for each small pot while the transfer is being considered, they may not be in a position to assess whether a PPA would be retained.

It seems to us that it would be administratively simpler and more in keeping with the policy aims to legislate for any PPAs to be maintained where a small pot is consolidated, and to require the consolidator schemes to honour PPAs (ie to allow members to take their benefits in line with their protected pension age, rather than a later age under the scheme rules).

CHAPTER 3: INDIVIDUAL CHOICE

Question 5: Are there any additional guarantees or protections that will need to be considered that have not been outlined in this consultation?

DC pension pots can be subject to a wide range of guarantees and protections. The consultation outlines some key areas, but there are many other types which are not expressly considered. These include arrangements where:

  • the member has the option to transfer their DC pot to fund a pension commencement lump sum in another specific pension scheme where the member has defined benefits (a “switch-back”) – we expect it would be difficult to replicate this arrangement in a consolidator scheme since it relies on a separate hybrid scheme accepting the transfer back
  • the member has a right to a scheme-specific lump sum, ie a tax-free lump sum of more than 25% of the value of their total rights under that scheme.[5] Where a member has a partial transfer of benefits out of that scheme, eg if a small DC pot is consolidated leaving remaining DB benefits in the scheme, the transferred rights no longer have protection[6]
  • all or part of the administration costs are employer-funded – again, it may be difficult for practical reasons to replicate this in a consolidator scheme, and
  • the protection / guarantee applies to only part of the pot – we assume that the whole pot would need to be treated in the same way rather than split and further fragmented.

Any comprehensive list of guarantees and protections should be developed in collaboration with the industry.

However, it is also important to note that many guarantees and protections are associated with historic / legacy arrangements or members with pension benefits built up before 6 April 2006. These types of guarantees and protections are less likely to be relevant here since the solution will, at least initially, apply to pension pots held within DC, charge-capped default funds created since 1 October 2012 (paragraph 25). Others, such as the switch-back option mentioned above, are connected to DB pensions and we expect will also become less relevant to the small pots population over time, as DB schemes increasingly mature and DB members retire.

Question 6:  Do you agree that the proposed content of the pre-consolidation notice would provide members with sufficient information to understand the consolidation process and support informed decision-making, while remaining clear, proportionate and accessible? How do you consider what would be best to test and review this communication?

Please see our general comment 4 above. We support making any pre-consolidation notice as standardised and simple as possible, to reduce administrative burden on transferring schemes and to help support member understanding and engagement, and to ensure that messaging is consistent across different schemes. Our concern is that each layer of member choice adds additional complexity and may discourage any engagement.

It should be very clear that the default position, if the member does nothing, is that the transfer will go ahead. It should also make clear that the consolidator scheme has been assessed as providing value for money. To help keep the communications concise, they could signpost to further information available elsewhere. For example, details of alternative consolidator schemes could be kept on a website rather than included in the communication. This may also have the benefit of reducing costs associated with the communications, and ensuring information about consolidator schemes is consistent and up to date.

Some individuals may have multiple small pots and could receive several separate communications around the same time (subject to phasing). All messaging across the different schemes should be as clear and consistent as possible.   We wonder if a template notice could be prepared for the industry to use to reduce the burden on schemes and encourage consistency in messaging, akin to the annual benefit statement template.

CHAPTER 4: REQUIRED STANDARDS TO ACT AS A DEFAULT CONSOLIDATOR SCHEME

Question 13: Which approach to scale do you consider most appropriate to support positive member outcomes, and why? Are there alternative approaches that should be considered? How should this be monitored and updated over time to ensure they remain appropriate as the market develops?

Given the impact that the new VFM framework and scale requirements are expected have on the pensions landscape, we suggest that any approach should be kept under review as the market develops. If a pot is transferred repeatedly as a result of VFM, scale and small pot consolidation requirements, there is a risk of reducing confidence in the solution and further decreasing member engagement due to perceived complexity or difficulty keeping track of pots.

Question 14: Do you agree that the most appropriate and equitable approach is to review the flat fee de minimis threshold across the market as a whole, with any changes implemented ahead of the introduction of the Multiple Default Consolidator solution? If not, which of the options discussed do you consider most effective in delivering strong member outcomes, and why?

It seems sensible to review the de minimis threshold across the market as a whole, in the context of wider pensions policy changes (including the new VFM and scale requirements).

Question 15: Do you think schemes should be prohibited from acting as a consolidator scheme if they do not receive a specific VFM rating, if so, what rating do you consider to be an appropriate level of value?

Yes, we think that consolidator authorisation and the supervision process should make use of the VFM framework as one way to demonstrate that the scheme (or investment fund the member is being transferred into) is good quality. Consolidators should have a “value” rating for their default arrangements at authorisation and on an ongoing basis. We agree that the rating should be at least “light green”, noting that when the solution is first introduced from 2030, our understanding is that it may not have been possible for schemes to have achieved a “dark green” rating since this requires consistent outperformance to be demonstrated over time.[7] This should be kept under review with a view to increasing the requirement to “dark green” at an appropriate point in the future.

Question 16: Do you agree that consolidator schemes should undertake same scheme consolidation, and that option 1 presents the best safeguards for savers? Do you agree with the proposals on exclusions from same scheme consolidation?

We support same scheme consolidation and voluntary consolidation, where possible, to reduce both fragmentation in the system and the risk of pots being transferred multiple times. We are aware that some master trusts are already implementing voluntary consolidation via pot exchange. Certain providers are also able to “link” pots to show members each of their separate pots with that provider (although these are not amalgamated without member instruction).

CHAPTER 6: DIGITAL INFRASTRUCTURE, DATA MATCHING AND DATA STANDARDS

Question 22: How do you consider this process should be delivered for smaller schemes that are unlikely to transfer significant volumes of small pots and for which investment in dedicated digital infrastructure may not represent good value for their wider membership?

The trust-based occupational pension schemes market encompasses a wide range of scheme sizes and types, and the solution will need to be workable across the board. One way to achieve this may be for schemes to access the infrastructure through larger third-party providers, in a similar way to pensions dashboards.

Question 27: To what extent do you agree that pension schemes should be required to apply a common data matching framework when participating in the small pots consolidation process?

We are aware that others are commenting in more detail on specific standards, but we would emphasise our support for:

  • taking advantage of learnings from the development of pensions dashboards
  • using common standards to ensure consistency across all schemes in scope, and
  • ensuring that members’ personal data is subject to appropriate protections (please see our response to question 30 below).

Question 30: To what extent do you agree that a central digital interface should issue, or enable the issuing of, security credentials, certificates, keys or tokens to support secure communications between participating schemes and consolidators?

We agree there is a need for appropriate protections to ensure that member data can be exchanged securely on such a large scale. If the central digital interface is to provide that protection, we assume this would be subject to appropriate testing, and that the phasing of the requirements coming into force will be designed with reference to the capacity/capabilities of this system.

Can principles from the pensions dashboards system be applied to help refine the model and ensure that transfers of data are minimised as far as possible, and in relation to data protection and resolving partial matches?

CHAPTER 7 – EMPLOYER DUTIES

Question 32: To what extent do you agree with the proposed approach to improving member data quality through enhanced employer data requirements? Please provide reasons for your answer, including whether the proposed 12‑month interval and information requirements are proportionate, whether any additional information should be included or any proposed information is unnecessary, and how any administrative burden on employers could be minimised.

We support measures to help trustees maintain complete and current member data, which is important not only for the functioning of the solution but for pension scheme administration more widely. We can see that it would be helpful for workplace pension schemes generally if member enrolment information provided by employers included personal email addresses and phone numbers where members are willing to share them.

We also agree in principle with a requirement for employers to update pension schemes where key information has changed. Many employers may already have systems in place to update pension providers where employees’ contact details change. It seems to us that a 12-month interval for required periodic updates would have a limited impact on improving data held in relation to small, deferred pots, since we expect that the vast majority of such pots will relate to former rather than current employees.

As some limitations with data and record-keeping are inevitable, it will be important that the process for “partial matches” works effectively. There may be learnings that can be applied from pensions dashboards, while recognising that members whose pots are automatically consolidated will not be engaging at the point of transfer and so partial matches would need to be dealt with without relying on member involvement.

Question 33: To what extent do you agree with the proposed approach requiring employers to provide information where an individual is temporarily absent from work but intends to return and resume pension contributions? Please provide reasons for your answer, including whether you agree that such information should be used to help schemes avoid incorrectly treating pots as dormant.

We do not think it would be appropriate to require employers to provide details about whether an individual who is absent from work “intends to return and resume pension contributions”, as they (and even the employee) are unlikely to be able to provide that information with certainty. As a proxy, it could be useful for schemes to have information about employment status. However, in line with our general comments above, we support making the solution as streamlined as possible. Therefore, if this issue is a significant concern, we wonder if it would be mitigated by increasing the length of time before a small pot comes into scope to longer than 12 months?

[1] Under paragraphs 23ZB – 23ZC of Schedule 36 to the Finance Act 2004

[2] For an overview, see HMRC’s PTM063130

[3] See PTM063150

[4] Our understanding is based on the proposals set out in the DWP’s consultation published on 13 July 2026. Paragraph 385 sets out the proposal that for an arrangement to be given a dark green rating, it must be clearly outperforming over time.

[5] Section 2.10 of the Budget 2026 Overview of Tax Legislation and Rates

[6] Government response to the consultation on the Occupational Pension Schemes (Preservation of Benefits and Charges and Governance) (Amendment) Regulations 2018, paragraphs 66 – 69, February 2018

[7] Under section 73 of the Pension Schemes Act 1993