Small Pots Co-ordination Group publishes potential solutions

The Small Pots Co-ordination Group’s spring 2022 report has recommended three models as potential solutions to the increasing number of small, deferred pension pots in the auto-enrolment space.

The three models which it recommends for further consideration are:

1. Pot follows Member (PfM): When an employee moves jobs, their deferred pension pot automatically moves with them to the new employer’s scheme (where the pot is below a prescribed value, of a specific type and has been deferred for a specific time period). There will be an option for the employee to opt-out and leave the deferred pot with the former employer.
2. Multiple Default Consolidators: Pots deferred for a certain amount of time, below a certain value and of a specific type, will transfer automatically to a small pot consolidator. Multiple deferred pots belonging to the same person could then be linked by the consolidator. There would also be an opportunity to opt-out under this model. The Group acknowledges that there would be many different methods to explore for determining which consolidator an individual is attributed to.
3. Member Exchange: Members with small, inactive pots in one master trust and an active pot in a different master trust are identified and merged into one active pot.

A recent pilot of the Member Exchange model undertaken by three master trusts has however hit a stumbling block in the form of the planned increase in the Normal Minimum Pension Age (NMPA) from 55 to 57 in 2028. As only one of the three participating master trusts has rules protecting a member’s right to continue to take their benefits at age 55, there is a concern that those members would lose their ability to access their benefits at 55 if they were transferred to another of the master trusts.

The Group will keep a watching brief as to whether the Government stance on the NMPA increase changes, but for now, hopes that further steps such as a cost/benefit analysis on each of the models will occur so that a preferred model can be identified – we await the next steps and whether a recommended model will emerge.