Pensions Bulletin 2025/17
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This edition: Small DC pots consolidation policy, Annual funding statement for DB schemes issued, TPR encourages schemes to consider DB superfunds as a potential endgame solution, and more.
Small DC pots consolidation policy – a small step forward
On 24 April 2025 the Department for Work and Pensions announced by way of a press release the final recommendations of the Small Pots Delivery Group and the Government’s response. This group had been set up in February 2024 (see Pensions Bulletin 2024/06).
The headline points are that the indicative legislative timetable suggests that it will be 2030 before this policy comes into force, and the maximum size of small pot initially to be included is £1,000 – as had been previously proposed (eg see Pensions Bulletin 2023/28). The Government’s data indicates that, as at 2024, this would cover 57% (13m) of deferred pots less than £10,000 – but that would only be 11% of assets (£4.3bn) on the same basis. So whilst the actual number of saver records could be substantially reduced – and the impact this could have on the administration running costs of providers should not be ignored – in terms of consolidation of assets it is likely to be of relatively little impact.
The number of small pots has grown dramatically in recent years and is arguably one of the unintended side-effects of automatic enrolment as existing small pots cease to attract contributions when people change jobs. The problems this creates, for example savers losing track of pensions and increased administration costs, have been discussed for more than a decade. In 2023 the then Government decided to address this by creating an “authorised and multiple default consolidator” regime, with the intention to enable small pots to be consolidated into one vehicle so that the individual saver would be better able to keep track of their pension savings and also possibly benefit from economies of scale.
Last summer’s King’s Speech stated that this year’s Pension Schemes Bill will include implementation of auto-consolidation of small DC pension pots (see Pensions Bulletin 2024/27), so the timing of this final report is consistent with that.
The group’s final report makes clear that the Government’s conclusion about allocation to the consolidator is that if the saver has made an active choice then that would be the consolidator, if not but the saver has a pot(s) with an authorised consolidator then the one with the largest such pot will become the consolidator. Otherwise, it is allocated through a carousel.
There is also further detail around how this will work in a universe of multiple default consolidators, including confirmation that authorisation to act as a consolidator will be built out from the existing DC Master Trust authorisation framework. However, it is not intended that every Master Trust has to also act as a default consolidator.
Consolidators will also need to be financially secure providers offering good value for money to savers and also offer a Sharia-compliant fund. A pot will become eligible for automatic consolidation 12 months after the last contribution was made if the pot value is less than £1,000 (there are some other points of detail) – this threshold will be kept under review as the Government monitors impacts.
To help make all this work, a Small Pots Data Platform (SPDP) will be set up whose remit will be data verification, data matching and facilitation of the consolidation process. (The term “clearing house” had been used previously but this has been deemed inappropriate for this situation.) A feasibility review will be undertaken to inform the Government of the SPDP’s key components and the necessary underpinning primary legislation. It is anticipated that the review will commence in Spring 2025 with key findings reported back to the DWP in June 2025, informing decisions to support the passage of the Pension Schemes Bill.
Member communications will initially be handled by the ceding provider and receiving scheme, rather than the SPDP.
Comment
While the report has some welcome conclusions, there are still many more detailed decisions which are needed, such as the timeline and approach for a phased implementation, data matching standards and the final remit of the SPDP before the policy can become a reality – which is still several years away.
It would also be useful to have an indication of Government thinking as to whether the £1,000 small pot threshold, below which pots will initially be consolidated, should be increased in due course to expand coverage of this policy.
Annual funding statement for DB schemes issued
On 29 April 2025 the Pensions Regulator issued this year’s DB annual funding statement. It is the first such Statement under the new funding regime and is particularly relevant to valuation effective dates for the 12 months starting from 22 September 2024.
On the same day we issued a News Alert on this significant development that steps through and comments on the key elements of the Statement
Comment
Much of this year’s Statement is taken up in clarifying aspects of the new funding regime which will be welcomed by those having to undertake their first such valuation. And, unsurprisingly, there is reference to recent geopolitical and trade uncertainties, set against funding levels that had generally improved to this point. As ever, the Statement is well worth reading, as is our News Alert!
Pensions Regulator encourages schemes to consider DB superfunds as a potential endgame solution
David Walmsley, Director of Trusteeship, Administration and DB Supervision at the Pensions Regulator, has set out some suggestions for making transfers to a DB superfund run as smoothly as possible, in the light of experience gained in relation to the three transfers that have taken place to date to Clara.
He examines some friction points where there is uncertainty about what the Regulator needs from trustees and employers. These include what needs to be done to establish whether buyout is affordable, the rationale for transferring to a superfund, and the bulk transfer terms.
His blog extols the advantages that superfunds can bring, particularly to smaller schemes. He also says that the Regulator is working closely with the Government as it develops a permanent legislative framework for the authorisation and supervision of DB superfunds, which will be driven forwards by the upcoming Pension Schemes Bill.
Finally, he points to the promised “Defined Benefit Scheme Endgame Options Guidance” which will explore the wider range of options available in 2025 for DB schemes and which his colleague Patrick Coyne (see article below) said is now promised for publication in May 2025.
Comment
Arguably this blog signals a shift in Regulator thinking as it appears to be encouraging hundreds of DB schemes at the smaller end of the market to consider superfunds as a potential endgame option and in so doing drive further consolidation across DB schemes. However, at the current time there is only one model of superfund provision and one provider available. And those schemes examining their potential endgame should equip themselves with a full understanding of all options before proceeding.
Large majority of FCA-regulated pension providers on course to connect to the dashboard
The Pensions Dashboard Programme has reported that over 90% of pension providers regulated by the Financial Conduct Authority that responded to a survey expect to be on course to meet their relevant dates to connect to the pensions dashboards ecosystem.
In addition, large majorities of respondents were at least ‘very confident’ in meeting connection requirements and more than eight in ten respondents already held all matching data digitally. There was also very high confidence in meeting requirements for how pension values must be calculated and how quickly providers must return data to dashboards, with 85% of respondents having reported they were very or completely confident.
The research involved an online survey of 130 FCA-regulated pension providers with a response rate of 46% (60 firms), carried out between October and November 2024. The PDP says that this means it should be viewed as a ‘snapshot’ of readiness at the end of 2024, around six months ahead of the first connection date in guidance.
Comment
Although clearly a good news story, it is hardly surprising that the SIPP, personal pension and DC AVC provider market has been able to rise to the challenge. Many will have had good electronic systems in place holding up to date information and been well-versed in providing annual benefit statements.
Multi-employer CDC schemes to go ahead
Pensions Minister Torsten Bell, addressing LCP’s DC and Financial Wellbeing Conference on 29 April 2025, has confirmed that regulations will be laid this Autumn to allow multiple employer CDC schemes to be established, so that a range of unconnected employers can pool their employees’ pension pots into a collective fund. Subject to parliamentary approval he intends to bring the legislation and an updated Regulator’s Code into force as soon as practicable.
He also confirmed his desire to deliver decumulation only CDC schemes. The Government will continue to work with industry stakeholders to develop these.
Comment
This is most welcome news. The Department for Work and Pensions had consulted on these regulations last October (see Pensions Bulletin 2024/38). The minister’s plans are consistent with what was announced back then.
Regulator innovation hub to launch this summer
Patrick Coyne, Interim Director of Policy and Public Affairs at the Pensions Regulator, has confirmed in a speech delivered at the Pensions Age Spring Conference that the Regulator will launch its planned innovation hub this summer (see Pensions Bulletin 2024/40).
His speech centred around why innovation matters to the Regulator, how the Regulator will support innovation in savers' interests and identification of the areas where innovation could make the pensions system work for everyone. In it he touched on the importance of improving data as a precursor to sparking innovation, the Regulator supporting new models of pension provision (pointing to DB superfunds) and innovation in administration and membership experience (pointing to decumulation and the new Guided Retirement duty on trustees of DC schemes that will be set out in the forthcoming Pension Schemes Bill).
Comment
Despite his speech, the Regulator’s innovation hub still appears to be a somewhat nebulous concept. Is it no more than a portal through which those who need to ascertain the Regulator’s view on matters can raise their concerns? Is it a mechanism through which more direct contact can be achieved with relevant persons at the Regulator and so aid efficiency? Or will it be limited to some specific topics of current interest to the Regulator to test out with the market? Anyway, we don’t have long to wait now.
HMRC’s Pension Schemes Newsletter 169
HMRC’s latest Pension Schemes Newsletter 169 contains numerous articles, nearly all of which will only be of interest to those carrying out day to day tax administration of a registered pension scheme. It includes articles on the pension scheme return, migrating to the managing pension schemes service, completing relief at source annual returns, various lifetime allowance protections and enhancements and EEA-based QROPS. It also contains the latest pension flexibility and registration statistics.
Separately, HMRC has also announced that, as part of its simplification package promised in the Spring Statement, it intends to further enhance the “Check your State Pension forecast” service, which supports people who want to pay voluntary National Insurance contributions to fill gaps in their National Insurance record.
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