Small pots group revisits ‘pot follows member’ solution

If a person has multiple deferred small pots, these could be linked by the consolidator and this model comes with a variety of design choices. A single default consolidator model has been discounted.

The member exchange model, for which the trial grounded to a halt initially, was another recommendation.

For this model, the principles have been tested with three master trusts and identifies a small deferred pot in one master trust and an active pot in another master trust and merges the two into the active pot.

Izat added: "Alternatives such as a ‘single member view’, where members can see all their pots with each provider risk duplicating the work of the pensions dashboard project.

“The other option under discussion has been a default small pot consolidation option, in which any small deferred pots would be transferred to a pre-determined consolidation destination. However, this runs the risk of distorting competition, and gives consolidators little incentive to invest in their proposition.”

The group suggested that a combination of these three models may be the best approach. 

However, further legislation will be needed for the proposed models to work, they said.

The member exchange pilot has found that creating a framework for transfers without savers’ consent, something which is crucial to reducing the number of small pots, is not possible at this stage.

PLSA deputy director of policy Joe Dabrowski, said: “Supported by the expertise of pension providers, regulatory and consumer bodies, the co-ordination group has made significant progress in setting out a pathway to solve the small pots issue once and for all.

“Left unchecked, the number of small pots is set to more than double to 27mn by 2030 with implications for the engagement and understanding, as well as the retirement outcomes, of affected savers.”

The group also recommended legislation be brought forward which compels relevant providers to take part in the solution, defines the pots in scope and defines the liability model. 

Dabrowski added: “All the evidence indicates that a successful, long-term solution will need a legislative footing. Given the expanding number of pots it will be important to take forward a solution quickly, and we look forward to working with government to make this happen.”

The ABI and PLSA called for further analysis on the three models by industry and government to understand which offers the best outcome for savers. 

This should include which models consumers prefer, and their cost and effectiveness in reducing the number of small pots, it explained. 

Opperman said: "Given the risks that the growth of deferred small pots presents to savers and their ability to plan for retirement, it is vital that we find the right solution.