The Society of Pension Professionals (SPP) has urged the government to enhance its plans for merging small defined contribution (DC) pension pots. The organization emphasized that successful execution would depend on strict protections, accurate data, and consolidators ensuring favorable results for members.
The SPP supported the overall objectives of reducing pension fragmentation and unnecessary administration through automatic consolidation. However, they pointed to several areas that needed alterations to ensure the reforms worked in members’ interests.
The society recommended that pots containing specified guarantees and protections, such as guaranteed annuity rates and protected retirement ages, should be automatically excluded from consolidation. They also called for an industry-developed catalogue of protected rights and consistent classification standards.
Consolidators should demonstrate operational capability as well as financial strength, the SPP continued. They noted that asset size alone did not guarantee good member outcomes and schemes should be able to receive significant transfer volumes without compromising administration or service quality.
The SPP wanted early guidance and robust operational testing to ensure that protected pension ages and other rights were preserved. They also advocated for ongoing monitoring by the Financial Conduct Authority and The Pensions Regulator.
Member communications need to be clear and concise, the SPP added, to give members an understandable explanation of proposed transfers and their options. They supported common data, matching, and secure messaging standards, aligned with pensions dashboards where possible.
“Automatic consolidation has the potential to make a positive difference by reducing pension fragmentation and unnecessary costs for savers,” commented Madalena Cain, SPP DC Committee deputy chair. “But the SPP believes the system must be designed around scheme members’ interests, not simply the mechanics of moving pots.”
