The government’s small pots reforms will place significant demands on pension administrators, systems and data, the Pensions Management Institute (PMI) has warned, as the industry called for an operationally workable consolidation framework.

The warning followed the launch of the government’s consultation on the governance framework and digital infrastructure required to implement its proposed small pension pot consolidation regime.

The consultation considers how consolidator schemes will be authorised, the standards and governance arrangements they will be required to meet and the digital ecosystem needed to support the transfer of eligible pots.

PMI chief strategy officer, Helen Forrest Hall, welcomed the consultation as a step towards addressing a problem that would continue to grow as automatic enrolment matured, but stressed that the eventual solution must be practically deliverable.

“Moving potentially millions of small pots between schemes will place significant demands on administrators, systems and data, so the final framework must be designed around what can realistically be implemented at scale,” she continued.

“We need an approach that is operationally workable, avoids unnecessary complexity and gives schemes sufficient time to prepare.

“The ambition is right, but successful reform will ultimately depend on getting the practical detail right.”

People’s Partnership chief operating officer, Angela Staral, also welcomed the consultation, arguing that addressing the growing number of small pension pots was “a critical step” towards improving outcomes for millions of savers and creating a more efficient pension system.

However, she stressed that schemes serving the automatic enrolment market should be closely involved in designing and governing the proposed infrastructure.

“The schemes serving the automatic enrolment market carry the bulk of small pots below £1,000 and will be the main users of the federated IT solution proposed in the consultation paper to identify and allocate small pots for consolidation," she said.

“It is therefore essential that those pension schemes are closely involved in its governance and design.”

Meanwhile, Sackers partner, Ferdy Lovett, welcomed the consultation as the next stage in addressing the “growing small pots conundrum”, although he warned that several practical issues would need to be resolved.

Lovett explained that the government had previously consulted on the criteria for determining which pots would be eligible for consolidation, while the latest consultation focused on the regime's operation and governance.

“There are clearly key practical steps which will need to be ironed out, including providing transferring, or ‘ceding’, schemes with the necessary tools to exchange information with consolidator schemes, understand whether a match has been identified and determine which consolidator should receive a particular pot,” he stressed.

Lovett added that, with the government seeking to use existing and developing industry capabilities, the consultation represented a “crucial phase” in the regime’s development.

The scale of the exercise was also highlighted by Lumera, which noted that there are more than 13 million deferred pension pots worth less than £1,000, with around one million additional small pots being created each year.

Lumera commercial director for data and dashboards, Maurice Titley, said consolidation was therefore one of the most significant operational exercises facing the pensions industry.

He argued that the proposed federated delivery model could offer an efficient and scalable solution by allowing schemes to continue handling data exchanges, matching and transfers within common rules, standards and governance arrangements.

“When Lumera co-authored the 2025 Pensions UK Small Pots Digital Systems Feasibility Review with KGC, one of our key conclusions was that a federated model could be delivered, provided the industry established common approaches to areas including data standards, messaging standards and data matching,” Titley stated.

“This consultation provides an opportunity to develop those detailed approaches further, including defining the role and responsibilities of the proposed central oversight body.”

Titley also highlighted the government’s ambition to make small pot consolidation operational from 2030, arguing that the consultation provided sufficient direction for the industry to begin preparing.

“Schemes and consolidators will need the data, systems and processes in place to support a federated delivery model at scale, including the high volumes of automated matching and transfers that will be required,” he continued.

“The consultation provides an opportunity to test and refine the standards, governance and operational processes that will ultimately be needed to make consolidation work effectively for millions of savers.”

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