Still a long way to go before savers see benefits from Small Pots consolidation

The key takeaways from the DWP’s Small Pots Delivery Group report are that savers’ pots won’t be consolidated for at least five years and that more detail is needed around how the policy would work in practice according to LCP’s Tim Box.

The Small Pots Delivery Group is a group made up of members of the pension industry and government tasked with the design and detail of the implementation of the consolidation of small pension pots.

The proposed legislative programme outlined in today’s report means that pots won’t be consolidated until 2030 at the earliest. The report also gives further detail around how this would work in a universe of multiple default consolidators, including confirmation that authorisation to act as a consolidator will be built out from the existing Master Trust authorisation framework. Consolidators will need to be financially secure providers offering good VFM to savers and also offer a Sharia compliant fund.

While the report has some welcome decisions, there are still many more detailed decisions which are needed before the policy can become a reality. A key decision is how and when the £1,000 small pot threshold, below which pots will be consolidated, will be increased in order to increase coverage of this policy.

Tim Box, Principal at LCP, commented “It’s disappointing that today’s report says that we are still at least five years away from small pots being consolidated especially when it has been under discussion for more than a decade. It is also worth noting that the effect will be fairly limited when consolidation does eventually start to take place.

“Until then, there are still many more key details to be worked out. The most significant will be around keeping the £1,000 savings threshold under review with the intention of increasing it over time.”