Clare McHenryThe UK’s Small Pots problem has long been a pain point for both trusts and members alike, with any hopes of wide-scale consolidation dashed by the mountains of paperwork and long hours involved, thanks to the siloed nature of the market. While many schemes may be waiting for that first piece of regulation to spur them into action, why wait?
Instead of looking at advanced markets like the Netherlands and Canada and longing for the efficiency and consolidation they’ve developed, we should be taking notes.
In Australia, for example, the sector moved first before Government regulations came into effect. And if we look closer to home at the recent feasibility report from Pensions UK, it’s also concluded that the solution to this problem needs to be industry-driven. But why, and more importantly, how?
Why we can’t wait
The ultimate aim of the pensions market is to deliver the best possible outcomes for the average worker, but at the moment, more could be done. Compulsory contribution rates have been stalled at 8% since 2019, and 73% of the population is estimated to have a pension income below Pension UK’s recommended level for even a moderately comfortable retirement living standard.
While much of this is dependent on government action, there are steps the industry could be taking to drive better outcomes sooner rather than later.
According to the Pension Schemes Bill, if we carry out widespread small pot consolidation, retirement savings could be boosted by £1000 for the average worker. But if the industry waits until the Bill eventually passes through approval, it could be 2030 before we see any movement on this. And in the meantime, the average worker won’t see any benefits.
Building new foundations
The underlying problems stopping not just small pot consolidation but also wider industry progress are clear. Trusts and schemes are excessively siloed thanks to a lack of overarching standards, making collaboration and consolidation difficult at best.
But using the issue of small pot consolidation as a starting point, we can start the journey towards a meaningful digital transformation. If we take inspiration from more advanced markets like Australia, the guidance is already out there; we just need to pay attention to it.
Before anything else, we need to address data validation by standardising formats. This will create a strong foundation on which to build. Then, we can start addressing the issue of interoperability. Using the ‘SuperStream’ model as a framework, we could create standardised digital data and payment protocols that can streamline existing pension contributions, reduce admin costs, and improve transparency. This will pave the way for the connectivity between pension schemes, payroll providers, and government platforms needed for consolidation.
With all of this in place, intelligent automation can be layered in to further reduce cost-intensive processes and errors with the likes of automated reconciliation and report generation. All of this will allow schemes to scale operations without increasing overheads, future-proofing for consolidation and beyond.
Small pots and beyond
In the short term, these changes are no small task. But, they are necessary to drive better outcomes for average workers, which is the aim of the game after all.
What’s more, they’ll also unlock new opportunities for trusts, helping them stay competitive and freeing up more time for improving employer and member experience. It doesn’t just solve one issue, it’s also a strategic investment into long-term growth, and market leadership in the UK – so why wait?
Clare McHenry is head of UK operations at Superchoice
