Small Pots



Small Pots


Automatic enrolment has successfully enabled millions of workers to financially prepare for later life. However, frequent job changes and disengagement have led to the proliferation of small deferred pension pots. This growth presents significant challenges for savers and pension providers. 

Enabling consolidation could help to support greater personal ownership and empower people to understand and maximise their workplace pension savings. 


The PLSA and ABI jointly convened a Small Pots Co-ordination group (see below) to develop practical solutions to the rapid increase of small deferred pension pots.


In September 2020, the Department for Work and Pensions set up a Cross-Industry and Government Working Group to explore the small pots issue and potential solutions – the focus being to drive a member focused solution and achieve cross industry consensus. The Working Group reported to the Minister with the final report in December, including recommendations and an indicative roadmap of actions for industry, delivery partners and Government. The PLSA was a member of the Working Group. 

One of the recommendations of the report was to set up an industry operational focussed group to address administrative challenges underlying longer-term mass consolidation models such as, common data standards, data-matching and low-cost efficient transfers.

In response to the recommendations the PLSA and ABI jointly convened a Small Pots Co-ordination Group, which compromises experts from a range of pension providers, industry bodies and stakeholders.

Members of the group are:

Andy Cheseldine (Chair), Capital Cranfield Trustees Ltd  |  Joe Dabrowski, PLSA  |  Rob Yuille, ABI  |  Kim Gubler, Pensions Administration Standards Association (PASA)  |  Adrian Boulding, NOW: Pensions  |  Phil Brown, The People's Pension (TPP)  |  Zoe Alexander, NEST  |  Carol Knight, TISA  |  Stephen McDonald, Which?  |  Sarah Luheshi, Pensions Policy Institute (PPI)  |  Rob O'Carroll, DWP  |  Gemma Mullis, Chartered Institute for Payroll and Pension Professionals (CIPP)  |  Tim Smith, Herbert Smith Freehill  |  Dale Critchley, Aviva  |  Jasmine Smiley, Fidelity International  |  Ronnie Morgan, Royal LondonThe group will direct relevant work across the industry and several Working Groups will sit below it looking at Data Standards, Transfers and Customer-Detriment.

  • The data standards group is looking at data matching and common data standards and see where there is overlap with the Pensions Dashboard Project and other work.
  • The transfers group is looking into the current costs in the transfer process and where they can be removed to make the transfer of small pension pots more efficient.
  • The customer detriment group is looking at conditions for when small pension pots could be moved. 

For more details about the coordination group please see their Terms of Reference. If you have any questions about this Group or the work taking place please contact Kate Boulden.

The issues of small pots was a known consequence at the outset of the implementation of automatic enrolment (AE) and ways to limit their creation were included in the first AE review in 2010. The PLSA has been involved in this policy issue since before proposals for pot follows member were put forward in 2012. In June 2020, we set up an internal working group with some of our Master Trust members to assess the current situation and potential solutions.

In 2020, the Department for Work and Pensions’ conducted a Call for Evidence on the Review of the Default Charge Cap. This consultation renewed attention on the issue of small pots as it proposed limitations on flat fee structures. This was intended to address some, but not the wider issues or causes of small pots.  In our response we urged the government to consider the problem more holistically.

Following this call for evidence, the DWP set up a Cross-Industry and Government Working Group in September 2020. The Group reported to the Minister with the final report in December, including recommendations and an indicative roadmap of actions for industry, delivery partners and Government. The PLSA was influential in the direction that the Working Group took, and also Chaired the Single employer pensions panel and took part in the Master trusts and Implementation / technical panels. 

We do not see one solution working well in isolation; multiple solutions working in tandem are likely needed to resolve the problem of small pots, both for legacy pots and for future pots. Member-initiated solutions will go some way to resolve small pots, however they will not resolve the issue entirely.

We believe a number of different solutions are needed to address the different causes of small pots:

  • a solution designed to operate in the short-term (e.g. consolidating returners, member exchange) 
  • a solution designed to resolve the issue in the longer-term (e.g. a default consolidator, Pensions Dashboard as an engagement tool – in conjunction with other options)   

And any longer-term solution will need to be underpinned by the following principles:

  • There should be no material detriment to the saver from being (automatically) transferred between DC schemes (including consideration of costs and charges).
  • Transfers should be efficient for schemes (e.g. automated or semi-automated) and simple and quick for scheme members.
  • Transfers should not rely solely of active decisions by savers to take place.
  • The proliferation of small pots should be stopped so that administration and other costs do not rise exponentially.
  • Competition issues and issues of reciprocity must be managed appropriately.

There are outstanding areas which need to be resolved before a final model is selected, such as better understanding the impact and potential costs and benefits to both savers and schemes, (including the financial implications and experience of interacting with savings), and proportion of the overall issue that is addressed. The DWP chaired Working Group prioritised two models for future consideration, pot follows member and default consolidators. 

No longer-term solution to small pots should come at the expense of a vibrant AE market, which would hurt savers. Therefore, careful consideration and financial modelling should be undertaken to assess how a solution would impact the AE provider market.