A standards-based, federated approach has been proposed to tackle the challenge of small pension pots in a white paper published by Equisoft.

The paper, Solving the Small Pots Challenge, was published following the Pension Schemes Act, which came into force last week. The Act enables the automatic consolidation of small pension pots, aimed at reducing costs and simplifying the system for members.

Commenting on the premise behind the proposed model, Equisoft products director, Nick Meredith, said: “A solution is required to the small pots problem that is scalable, secure, and deliverable within the government’s targeted timeframe.

“However, with policy and legislative detail still evolving, the industry is at a critical point: decisions taken now will shape the long-term structure, cost, and competitiveness of the market.”

The report explained that there is a risk that solutions adopted prematurely, or outside of an open and interoperable framework, could introduce unnecessary cost, create dependency on single providers, or require rework as the regulatory model becomes clear.

Equisoft’s white paper set out the case for a standards‑based, federated model that is open to all participants, arguing that it should build on existing frameworks such as SWIFT, ISO 20022, TeX, UKETRG and ViaNova rather than developing new centralised infrastructure.

The paper argued that the use of established infrastructure and open standards would reduce build risk and allow faster implementation, while avoiding reliance on a single provider and maintaining competition.

It added that a federated model would be consistent with the likely direction of government policy and regulatory oversight, enable consolidation at a cost proportionate to the value of small pots, and retain sufficient flexibility to adapt to future legislative and market changes.

“Crucially, this approach allows the industry to begin progressing towards consolidation in a way that is consistent with long-term objectives, avoiding the need for duplication or transition as the regulatory framework is finalised,” Meredith said.

“The choice facing the industry is not whether to act, but how to act. A federated, open standards model provides a low-risk, cost-effective, and future-proof path to delivering better outcomes for both providers and members.”

---