Helen Rowan is a member of the SPP's DC committee and a senior counsel at Sackers
The latest of the Society of Pension Professionals’ (SPP’s) regular columns looks at the House of Lords’ deliberations on the detail of small pot consolidation proposals.
Small pots consolidation was on the agenda in the House of Lords recently, as the Pension Schemes Bill continued to progress through Parliament.
Speakers from across the House expressed their support for the central policy of consolidating small pots – echoing support from industry bodies such as the SPP. The Lords debate therefore centred around the detail of the government's proposals.
The framework set out under the Bill is familiar – to introduce automatic consolidation of dormant small pension pots from auto-enrolment schemes through a multiple default consolidator model. Members will be able to choose a consolidator scheme or opt out from consolidation entirely if they wish.
The policy has been driven by concerns about the fragmentation of pension savings and recognises that small pots can be expensive to administer and represent poor value for savers.
Small and dormant
In the debate, the Lords tested what is meant by "small" and what is meant by "dormant" and left the wording of the Bill unchanged.
Under the Bill, small pots continue to be £1,000 or less and the Secretary of State continues to have power to raise or lower that amount without being subject to a statutory cap (a cap of £10,000 had been proposed).
A pot is still regarded as "dormant" if no contributions have been paid into it for 12 months (a period of 18 months had been proposed) and no investment decisions have been communicated by the member.
Interestingly, none of the Lords suggested that the £1,000 limit on small pots be increased from the outset – in contrast to some industry voices who have advocated for the limit to be raised (say to £3,000) or to rise with inflation, given the costs and poor value associated with small pots.
Instead, the concern was that, without a cap, the legislation could be "misused" to drive further consolidation in the market. In practice, procedural steps would be needed to change the £1,000 limit, once enacted, including consultation and parliamentary approval.
Member choice
Under the Bill, members must be sent a transfer notice that proposes a choice between a default consolidator and one or more alternatives, and the option to opt-out of transferring their pot. Where no response is received, a transfer will be made to the default consolidator.
Alternatively, the trustees or managers of the transferring scheme may determine that it would not be in the individual's best interests to transfer (and may make that decision in relation to a class of individuals).
While much of the small pots regime is likely to be automated, the requirements to choose a consolidator and to assess members' interests will require active engagement on the part of decision-makers.
The minister indicated that moving someone away from a specific religious fund or causing them to lose a valuable guarantee would be good examples of where it would not be in the individual's best interests to transfer. Regulations may provide more guidance, and trustees and managers will wish to consider this carefully when dealing with these matters. It remains to be seen whether the Bill will confer on managers the power to transfer in breach of contract – or grant a statutory discharge on transfer out, as proposed by the SPP.
Timetable
No changes were agreed to the implementation timetable and the DWP roadmap, updated in August 2025, therefore still applies.
Pensions dashboards are expected to be available ahead of small pots consolidation, but small pots consolidation will not be made contingent on the dashboards timetable. The aim is still to introduce the multiple default consolidator and the transfer duties from 2030 onwards.
Helen Rowan is a member of the SPP's DC committee and a senior counsel at Sackers
