The Department for Work and Pensions (DWP) has provided an update on its work developing a solution to address the proliferation of small, defined contribution (DC) pension pots, revealing that parts of the dashboards’ infrastructure may be used in the proposed multiple default consolidator model.

Addressing the PLSA Annual Conference 2023, DWP deputy director, automatic enrolment and DC policy, Rob O’Carroll, said that, as far as possible, the department wanted to leverage what has or is being developed through the pensions dashboards.

“We are really keen on that,” he continued. “The department is going to set up a delivery group.

“We are yet to set out the arrangements for that group, but the intention is that it will bring together schemes, employers, payroll, data experts to design the delivery of a solution that is cost effective and deliverable.

“The small pots delivery group will be tasked with considering the interaction between dashboards and delivering the small pots solution. We’ll look to involve individuals with extensive knowledge of the dashboards work to ensure there is greater collaboration.

“The dashboard infrastructure is member initiated, so it is different to what we are trying to do with the scheme-to-scheme transfers.

“Nonetheless, we think it’s likely that the delivery group will identify elements of the dashboard infrastructure that can be replicated: Data standards, data matching work, we’re hoping that's possible to be used.”

In July, the government launched a consultation on its preferred small pots solution: Multiple default consolidators.

O’Carroll noted that there had been no clear consensus on the best way forward, and it was now time for the industry to work together with the government and regulators to design a consolidator approach that works effectively and delivers best outcomes for members.

“We know this is a hugely complex and challenging areas,” he stated.

“The solution is going to require a new piece of data infrastructure for schemes to be able to see which of their default consolidators their employees have been allocated to, or already have a pot with, so there is a need for a structure around that.

“We know this work will require primary legislation, so we will look to take that forward as soon as parliamentary time allows.”

O’Carroll said there were points of difference across the consultation, including around the pot limit, which the DWP will address in its consultation response “that is coming”.

“We are looking to publish a response to the consultation and, as part of that, we will be setting out the role of the delivery group,” he added. “Once we publish the response, the direction of the policy will be clearer and enable us to focus on this approach.

“We’ve heard interest from a number of providers. There’s an authorisation regime to come, there’s the policy around the authorisation to come.”

Also speaking on the panel was Now Pensions director of policy and public affairs, Lizzy Holliday, who commented: “We have long advocated for an automated solution to the small pots issue, having worked closely with government and industry to drive forward a resolution for savers.

“We believe the multiple default consolidator model works best for savers - it better supports the member compared to pot follow member, especially those in non-traditional and transitory employment. It enables a longer-term relationship between the member and the scheme, and prevents pots becoming stranded when they reach a certain level. This means savers can keep track more easily and understand how prepared they are to retire.

“Applying a phased approach to implement the consolidator method would help achieve momentum in an efficient way. Doing this by focusing on member scenarios – starting with members in default consolidator schemes – would help address a large proportion of the issue, and make the most of learning from other projects, and tech solutions as they come down the line – delivering the best outcomes for savers.

“This is a significant undertaking, and we look forward to further discussions with industry and government on this crucial issue.”

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