More evidence is needed to understand the benefits of consolidating small pension pots, Which? senior economist, Stephen McDonald, has warned.

Speaking at the Pensions and Lifetime Savings Association (PLSA) Annual Conference 2021, McDonald stated that the challenge with generating possible solutions to the prevalence of small pots in the pensions industry is “a lack of evidence”.

“We don’t know a lot about the size of these benefits [of consolidating small pots]. We don’t know what the systemic gain is going to be, and we don’t know how much of that might be passed through to members,” he said.

“We don’t really know what the cost is of accessing multiple small pots. We certainly don’t know much about the decision-making costs. The one thing we do know with certainty is the charges, so inevitably this comes to the forefront when trying to make these decisions.”

According to McDonald: “What we really need is a lot more evidence to understand the benefits of this consolidation. We need to know who wins when and who loses when, and only with that information can we actually say to government, ‘well, this is what should happen, this is the outcome that we would want to see’.”

McDonald also suggested that “we might not get a one-size-fits-all policy solution” to the small pots problem.

“Maybe the policy solution, for these small or micro pots that are under £250, might look different to pots once you get into the low £1,000s,” he added.

Also speaking at the conference, PLSA head of DC, master trusts and lifetime savings, Alyshia Harrington-Clark, said “now is the right time to re-look at the issue of the proliferation of small pots so that they don’t undermine the system”, as potential upcoming auto-enrolment changes, such as the lowering of the earnings trigger and extending its scope to include 18 year olds, “will also likely increase the number of small pots”.

Chairing the session, Small Pots Industry Coordination Group chair, Capital Cranfield professional trustee, and Smart Pension chair of trustees, Andy Cheseldine, highlighted that there are 10.5 million pension pots of £1,000 or less, with the PPI estimating that, by 2035, there will be 27 million pots under £2,000 in size.

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