More than two million deferred small pots across five major master trust schemes could be consolidated if all became default consolidators under current government proposals, research from the Pensions Data Project has revealed.

The initiative, led by Legal & General (L&G), Nest, Now: Pensions, People’s Pension, and Smart Pension, published the final report of its Private Beta phase, which found that while individual pot sizes have grown, they remain modest, with an average pot value of £3,109 in 2022/23.

Although more than 16 million unique individuals, approximately half the UK’s working population, are covered by the five master trusts involved, most pots remain small.

In 2022/23, over half of all pots were worth less than £1,000, and seven in ten were under £2,500, according to the report, which was coordinated by the Pensions Policy Institute (PPI), with data consolidated and analysed by PwC.

The number of pots held also remained a concern, as the research found that members of the five providers hold an average of 1.3 pots, a figure expected to rise when other pension schemes and funds are included.

The group also pointed out that data for the project was provided up to 31 March 2023, noting that pot sizes since then are expected to have grown, potentially increasing the number of pots eligible for consolidation.

Gender and age disparities in savings were also highlighted, as the report found that men, older members, and those in certain regions typically hold higher balances, while women, younger savers, and those in lower-income areas continue to lag behind.

However, the group's consolidation modelling suggested that merging pots could lift average balances by more than 25 per cent, reduce the number of very small pots, and strengthen member outcomes.

These findings come as the government’s Pension Schemes Bill continues to work through parliament, with MPs debating the details surrounding the reforms, which include plans to consolidate individuals’ small DC pension pots through multiple default consolidators.

The report suggested this could have a significant impact, estimating that two million deferred small pots across five major master trust schemes could be consolidated if all became default consolidators under the proposals.

In addition to this, it said that a further 3.5 million pots were assessed and found to be single pots, which would either remain with their current authorised consolidator or be placed in a carousel system.

However, the group said that, with improved data quality and the inclusion of other schemes, including additional master trusts and GPPs, within the proposed default consolidator framework, it is likely that more pots could be consolidated.

Work to improve data holdings will now continue, as the group said that its Private Beta phase had proven that combining data securely across providers is feasible, laying a foundation for the next phase of the project.

Going forward, future phases will therefore expand coverage beyond master trusts to build a comprehensive dataset of UK retirement savings.

Commenting on the report, PPI project lead and co-author, Nicky Day, said: “We are proud to publish the final report of the Private Beta phase for The Pensions Data Project, demonstrating the powerful insights that can be delivered when the industry collaborates to deliver better outcomes for savers.

"This research proves combining data securely across providers is possible, laying the groundwork for the wider sector to now work together to fill a critical evidence gap in the UK pension system. When the sector and policymakers are better informed, we can maximise retirement savings for everyone.”

Indeed, Now: Pensions director of public affairs and policy, Lizzy Holliday, said that the findings provide a "rich source of data and evidence to inform key policy debates, solutions and delivery – including those currently progressing via the Pension Schemes Bill and the Pensions Commission".

The findings were also welcomed by The Pensions Regulator (TPR), with director of pensions reform, Patrick Coyne, stating: “TPR welcomes the work of the Pensions Data Project to establish a database which supports evidence-based policy-making.

"We have to solve the small pots problem, and this report highlights how fragmentated the DC pensions landscape really is.

"It also underlines the critical role that the pensions industry will need to play in implementing the Pension Schemes Bill and making the system work for everyone.

"We look forward to discussing innovative solutions with the industry to ensure that the default consolidation of small pots works effectively in savers’ interests.”

Despite the insights already gained, People's Partnership head of policy, Tim Gosling, stressed that "future secure merging of pension provider datasets with national statistics could provide much deeper insight into more complex policy problems".

"We may learn much more about how people work and save for retirement," he said.

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