Defined contribution (DC) small pots: Report

On 24 April 2025, the DWP published a Report by the Small Pots Delivery Group, setting out the Group’s detailed recommendations for a system of compulsory consolidation of small defined contribution (DC) pots, plus the government’s response and planned next steps.

This article explains the proposals, including:

• Consolidation of small pots: a reminder
• How will an eligible pot be allocated to a consolidator?
• Small Pots Data Platform (SPDP)
• Member communications
• SPDP: interaction with Pensions Dashboards
• SPDP: Feasibility Review
• Authorisation and supervision of consolidators
• Next steps
• Proposed timescale

Consolidation of small pots: a reminder

The Report follows a consultation response issued by the DWP in November 2023, setting out the basics of the proposed automatic consolidation regime. As a reminder:

• Pension schemes will be required to transfer “eligible pots” to a multiple default consolidator, with members having the right to opt out of consolidation or to choose their own consolidator.
• An eligible pot will be a DC pot which:
  • Was created since the introduction of auto-enrolment;
  • Is within an auto-enrolment charge-capped default fund (including sharia-compliant funds but excluding funds with guarantees);
  • Has had no active contributions for at least 12 months; and
  • Is valued at £1,000 or less (this amount will be subject to review).
• A central infrastructure and an authorisation and supervision regime for authorised consolidators were proposed to support the consolidation framework.

The Small Pots Delivery Group was formed to support the development of policy.

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How will an eligible pot be allocated to a consolidator?

• Where an individual with an eligible pot has chosen a particular authorised consolidator, the individual’s pot will be transferred to this consolidator.
• Where an individual already has one or more pots with an authorised consolidator, any further eligible pots will be transferred to the largest existing active pot already held by a consolidator. If all existing pot(s) with a consolidator are deferred, the eligible pot will be allocated to the largest deferred pot.
• Where neither of the above apply, the individual’s eligible pot will be allocated to an authorised consolidator using a “carousel system”. Individuals allocated on this basis will be shared proportionately among the authorised consolidators within the carousel.

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Small Pots Data Platform (SPDP)

A Small Pots Data Platform (SPDP) will provide the primary infrastructure to support the consolidation of small pots. The SPDP’s remit is likely to include:

• Data verification: including of correct member data; contact details; and confirmation that the scheme has followed the correct process and that the pot is an eligible pot;
• Data matching: using data from the transferring scheme to check whether the member already has a consolidated pot with an authorised consolidator; and
• Facilitating the consolidation process: checking for any previous consolidation for the individual member; allocating a new member to a consolidator under the carousel process; and notifying the transferring scheme of the allocated consolidator.

The Report recommends that the SPDP should not be actively involved in the transfer process itself and should not have responsibility for holding or transferring the member’s pots.

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Member communications

• Transferring and receiving pension schemes will be responsible for member communications. Initial communications within the transfer process will be undertaken by the transferring scheme.
• A prescribed standard format will have to be used for the content of member communications.
• Pension providers will be able to decide whether to issue digital or paper-based communications.
• Employers are encouraged to provide up to date data on their employees to their pension provider. In particular, the government would like employers to try to obtain employees’ personal email addresses.
• The government will consider whether further duties on employers should be included in primary legislation.

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SPDP: interaction with Pensions Dashboards

The Delivery Group considered the extent to which structures already in place for pensions dashboards could be used to implement small pot consolidation, while avoiding any delay to the introduction of dashboards.

The Group recognised though that the infrastructure for dashboards (where interaction will be member-initiated) is significantly different to the infrastructure required for small pot consolidation (which will often take place without member involvement).

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SPDP: Feasibility Review

The Pensions and Lifetime Savings Association (PLSA) will lead a Feasibility Review of proposals for the SPDP. The review will examine in particular:

• How to achieve the primary function of the SPDP from a digital perspective, with the aim of building a specification and operating model; and
• Which areas of the ecosystem already in place for pensions dashboards could be replicated for the SPDP.

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Authorisation and supervision of consolidators

• Authorisation criteria for consolidators will build on the existing framework for authorised Master Trusts.
• The government has decided to proceed on a “whole-of-market” approach: all authorised consolidators may be allocated new members under the carousel system. The government rejected an alternative “two-tier” approach, under which authorised consolidators could choose only to take eligible pots in respect of individuals who were already members of their scheme.
• The government will continue to work with the Financial Conduct Authority (FCA) to ensure that an equivalent regulatory framework could be introduced to apply to contract-based schemes, if there is appetite in the market for using group personal pensions (GPPs) as consolidators.
• The Pensions Ombudsman will be able to investigate complaints from individuals who believe an error has been made with the consolidation of their pension pots.

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Next steps

• The forthcoming Pension Schemes Bill will introduce a framework for requiring the consolidation of small pots.
• The government intends to say more about sequencing and timing over coming months and recognises the importance of a staged approach, taking account of other pension industry developments.
• Data standards will be established through regulations and statutory guidance.

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Proposed timescale

• Spring 2025: commencement of the Feasibility Review;
• June 2025: key findings of the Feasibility Review to be reported to the DWP, to feed into decisions to support the passage of the Pension Schemes Bill through Parliament;
• 2026: drafting of regulations, following the Pension Schemes Bill receiving Royal Assent;
• 2027/2028: elements of the legislation expected to come into force;
• 2030: duties on pension schemes to transfer and consolidate eligible pots likely to come into force.

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Authored by the Pensions team.