Small Pots, Big Questions: 10 key answers on the pensions consolidation regime

The small pots regime will generally apply to DC schemes used for automatic enrolment, although schemes will fall out of scope where they have 100 members or fewer, or if they are winding up before the regulations come into force.

The small schemes exemption is likely to be particularly helpful for Small Self-Administered Schemes, Executive Pension Plans, and Self-Invested Personal Pensions.

The Government currently intends the regime to apply to DC pots held within the default fund of in-scope schemes:

•  with a value of £1,000 or less
  
  
• where no contributions have been paid in for at least 12 months (although an exemption may apply where contributions have been paused due to extended parental leave, planned career breaks, or periods spent overseas)
  
  
• where the member has not made any active investment choice.

The Government is considering making the following exclusions (in addition to the potential exemption for dormant pots where contributions have been paused intentionally):

• Self-select investment arrangements: The DWP intends to exclude these arrangements on the basis that it would not be proportionate or practical, at this stage, for consolidator schemes to cater to the full range of religious, ethical, and specialist investment preferences across the market. This also reflects that members who have actively chosen specific investment options have demonstrated engagement with their pension.
  
  
• Pots with guarantees, protections, and additional benefits: Rather than a blanket exclusion, the Government proposes that pots containing guarantees or protections that increase their value beyond the total value of member and employer contributions will  generally be excluded from consolidation. However, trustees will have discretion to consolidate those pots where those guarantees offer limited benefit that will be outweighed by consolidation. Trustees will need to keep clear records of the reasons why a pot has been exempted from consolidation.

Examples of possible guarantees and protections include pots with PPAs, guaranteed annuity rates, survivorship benefits, and rights linked to marriage or civil partnership. In the case of PPAs, this proposal is intended to recognise that schemes wishing to operate as consolidators will be required to honour members’ PPAs when paying benefits (see Q5: What will schemes need to do to act as authorised consolidator schemes?, below) and pots that include a PPA can often retain this protection following a transfer where the statutory conditions for a block transfer are met.

Members will have the right to opt in to consolidation where pots have been exempted due to guarantees.

Although members will not need to initiate small pot transfers themselves, safeguards will apply, allowing them to opt out or select an alternative consolidator.

Trustees of in-scope schemes will need to issue a transfer notice for each eligible small pot, setting out:

• the default transfer proposal
  
  
• any alternative options
  
  
• the implications of taking no action, and
  
  
• an invitation to confirm whether the member accepts the default proposal or wishes to choose another option.

The transfer notice must also include prescribed information about the pot, the transferring scheme and any proposed consolidator, together with the terms of any contract the member would enter into.

Members will also have the right to opt in to consolidation where pots have been exempted due to guarantees (see Q3: Will any pots be excluded?, above), supported by clear transfer notices explaining the implications.

The authorisation regime for trust-based schemes to act as consolidator schemes will be overseen by TPR, building on the existing framework for Master Trusts. The FCA will make rules for contract-based schemes, based on equivalent standards.

This regime will cover governance expectations, regulatory oversight, and standards to support value for money and consumer protection. Authorised consolidator schemes will be required to:

• accept any eligible pot identified for consolidation
  
  
• be a qualifying scheme for the purposes of automatic enrolment
  
  
• preserve and honour members' PPAs
  
  
• only offer a single consolidator arrangement

Consolidators will also be required to meet requirements concerning:

• minimum Value for Money (VfM) standards within the default arrangement that they will use to consolidate small pots (which is expected to mean having a VfM rating of at least "light green");
  
  
• minimum scale thresholds: the Government is considering three options: (i) alignment with its scale reforms for master trusts (including transition pathway and new entrant pathway); (ii) restricting eligibility to those that have already reached the £25 billion threshold within a single default within the main scale default arrangement; and (iii) introducing a higher asset threshold for consolidators;
  
  
• charging structures: the Government is seeking views on options to strengthen flat fee protections on default arrangements worth £100 or less; and
  
  
• Sharia-compliant funds: all consolidator schemes will ultimately be expected to offer appropriate Sharia-compliant investment options, although this will not form part of the initial authorisation criteria. This reflects that Sharia-compliant pots will only fall within the scope of the regime once the Government considers the necessary VfM framework is in place and there is sufficient scale of such pots in the market.

The Government proposes that:

• where a member already has a small pot with a consolidator scheme, the ‘default proposal’ will be to transfer their small pot to that consolidator;
  
  
• where more than one consolidator is identified, the pot should be transferred to the consolidator holding the largest pot for that member; and
  
  
• where a member does not already have a pot with a consolidator scheme, eligible pots would be allocated across consolidators using a 'carousel' allocation process. The Government is seeking views on how the rules for that process should operate.

The consultation sets out a process map showing how this could work in practice (see paragraph 250).

In 2025, the Small Pots Delivery Group Report recommended that the Government introduce a Small Pots Data Platform, to act as a central hub to undertake data matching and identity verification on behalf of pension schemes. Pensions UK reviewed the feasibility of this approach and recommended an alternative federated, decentralised industry-delivered model, where schemes and consolidators exchange data directly using agreed standards.

The Government favours a "hybrid" federated delivery model, in which:

• in-scope schemes exchange information directly with consolidator schemes, understand whether a match has been identified, determine which consolidator should receive the pot, and initiate the transfer process directly, and
  
  
• centrally governed standards apply, underpinned by a central oversight body.

The central oversight body will be responsible for:

• standards-setting and governance: establishing and maintaining the rules, standards, and operational requirements that schemes must follow when participating in the small pots framework. These standards will be wide-ranging, covering: data and messaging standards; matching requirements; operational processes (potentially including service level agreements); carousel allocation rules; and arrangements for updating standards over time.
  
  
• digital interface and ecosystem coordination: supporting the practical operation of the framework by enabling consistent interaction between participating schemes, consolidators, and any relevant service providers.

As noted above, the regulators will have powers to authorise schemes to become consolidator schemes and to withdraw consolidator status where standards are not met. The Government is seeking views on whether there are specific areas where additional powers, duties or regulatory mechanisms may be required including in relation to imposing improvement plans and the treatment of members’ pots when required standards are no longer met.

The Government intends to strengthen employer duties under automatic enrolment to support the multiple default consolidator framework and improve the effectiveness of data matching. This will include requirements to:

• request personal email addresses from employees and provide them to pension schemes where employees choose to supply them;
  
  
• notify schemes (through a nil return or equivalent reporting mechanism) where they have requested a personal email address, but the employee has not provided one;
  
  
• update key member details periodically (at least every 12 months), including full name, date of birth, postal address and personal email address; and
  
  
• provide relevant information where an individual is temporarily absent from work and their contributions have ceased but intends to return and resume contributions (with the aim of helping schemes avoid incorrectly treating pots as dormant and consolidating them unnecessarily – see Q2: Which pots will be eligible?, above).

Significant further work is needed to finalise and implement these proposals:

• The consultation runs until 17 November 2026.
  
  
• The Government will consult upon draft regulations between April and June 2027.
  
  
• TPR and the FCA will consult on processes that schemes will need to undertake to act as a consolidator scheme, with further detail to be provided through the relevant TPR Codes of Practice and FCA rules. This consultation is expected to take place alongside the Government's consultation on the draft regulations.
  
  
• The Government is expected to issue a further consultation on ceding scheme duties, supervisory detail, finalised data standards and remaining framework elements (planned for late 2027 or early 2028).
  
  
• The Government expects to implement the Multiple Default Consolidation solution from 2030, starting between April and June (subject to a review of the required digital infrastructure).

Pension schemes and employers should consider taking the following steps to prepare:

• Master trusts and pension providers considering whether to become consolidator schemes will want to consider the authorisation criteria proposed by the Government.
  
  
• DC schemes should consider whether they fall within the scope of the regime. If so, they should consider whether further data improvements are needed, building on their ongoing preparation for dashboards.
  
  
• Employers should start considering what processes they need to put in place to comply with the additional automatic enrolment duties proposed.