Small pots: DWP consults on the pathway for consolidation

On 15 September, the DWP published its consultation, Small Pots: a pathway for consolidation. The core framework remains unchanged: eligible dormant defined contribution (DC) pots will transfer automatically to authorised consolidators unless the member chooses otherwise. This consultation provides further detail on eligibility, exemptions and consolidator standards, and sets out the Government’s preferred approach to the digital infrastructure, while leaving important implementation details to be developed. The consultation closes on 17 November 2026.

Eligible pots

The proposed £1,000 threshold and 12-month dormancy test remain unchanged, but the initial population would be more selective. The DWP proposes initially limiting consolidation to pots invested in charge-capped default funds in automatic enrolment schemes with over 100 members. Pre-automatic enrolment pots and self-select investments would fall outside the first phase, while Sharia-compliant funds would initially be excluded but could be brought into scope later. Pots carrying valuable guarantees, protections or survivor benefits may be exempt where trustees determine that transfer would not be in the member’s best interests. A protected pension age would not automatically prevent consolidation, although trustees could exempt a pot where protections cannot be preserved or where exemption would otherwise be in the member’s best interests. Trustees would need to record the reasons for any exemption, and members could still opt into consolidation.

Member choice

For non-exempt pots, trustees would issue a transfer notice identifying the default destination, available alternatives and the member’s right to retain the existing pot. Members would have at least 30 days to opt out or select another consolidator; otherwise, the default transfer could proceed. A further notice would confirm completion.

Default consolidator standards

A default consolidator would need to be an authorised Master Trust or Financial Conduct Authority-listed contract-based scheme, accept all eligible pots allocated to it, operate a single consolidator arrangement and preserve relevant protected pension ages, subject to ongoing regulatory oversight. The DWP is also minded to restrict consolidator status to schemes with a ‘light green’ or ‘dark green’ Value for Money rating that have reached, or are on an approved pathway towards, the £25bn scale threshold. It is also considering whether existing protections against flat-fee charging will remain adequate once automatic consolidation begins.

A federated model with central oversight

The Government has concluded that a federated model, underpinned by a central oversight body, is the preferred approach. Ceding schemes and consolidators would exchange data directly using common standards, while the oversight body would establish rules for data, messaging, matching and carousel allocation, and operate a digital interface to support secure communications and participant verification. This approach builds on existing industry capabilities while avoiding the need for a central matching utility. However, key details remain to be developed, including matching standards, governance, operational processes and the duties of ceding schemes, which are expected to be covered in a further consultation in late 2027 or early 2028.

Improving member data

The consultation also proposes strengthening employer data duties to improve matching accuracy. Employers could be required to collect and periodically update key member information, including personal email addresses where provided, and notify schemes where employees are temporarily absent but intend to resume contributions. This should reduce failed matches and the risk of pots being incorrectly treated as dormant.

The Government expects to publish its response and consult on draft regulations in 2027, with a further consultation on detailed implementation requirements, including ceding-scheme duties and supervisory arrangements, planned for late 2027 or early 2028. Consolidation remains on track for implementation from 2030, with further detail on delivery and implementation timelines to be published in due course.