Executive Summary #
The UK faces a mounting pension crisis: 13 million small, inactive pension pots existed in 2024, projected to reach 17.5 million by 2030. Equisoft contributed to Pension UK's Small Pots Digital Systems Feasibility Review, which proposes a practical solution using existing infrastructure rather than costly central systems.
The Government's Solution
The Multiple Default Consolidator (MDC) model will authorize a small number of providers to consolidate pots under £1,000 from auto-enrolment schemes. The Small Pots Data Platform (SPDP) will enable schemes and consolidators to work together through a five-step process: enquiry, matching, response, complex match handling, and transfer initiation.
The Technology Approach
The review recommends ISO 20022 messaging over SWIFT—proven technology already used by over 400 UK brands for pension transfers. This federated approach avoids expensive central infrastructure while leveraging familiar, scalable systems that handle 45 million messages daily globally.
Equisoft's Key Recommendations:
- Establish governance early to define and maintain technical standards
- Simplify consolidator assignment using basic round-robin allocation rather than complex weighted approaches
- Eliminate pot size enquiry messages by including values in initial match responses
- Mandate UKETRG as the transfer mechanism to ensure consistent, cost-effective processing across 300+ schemes handling three-quarters of a million annual transfers
By building on existing standards and infrastructure, the industry can deliver a scalable solution that benefits providers, schemes, and members without unnecessary delays or expense.
What is the Small Pots Digital Systems Feasibility Review? #
Equisoft is pleased to have contributed domain expertise, solution design and example standards to Pension UK’s recent Small Pots Digital Systems Feasibility Review. This important paper marks a concrete step forward in tackling the growing issue of small pension pots without resorting to costly, complex central infrastructure.
The review’s recommendations largely align with positions Equisoft has consistently advocated for in previous consultations and reflect the standards framework originally adopted by the DWP. The standards developed by Equisoft (then Altus) in 2014 as part of the Pot Follows Member working groups followed a similar process and technical approach. Notably, the review confirms that a central clearing house is unnecessary, validating a more pragmatic, decentralised solution.
The full review can be found here.
What is the Small Pots Challenge? #
The UK pension landscape is facing a mounting issue: the proliferation of small, inactive pension pots. These are typically created when individuals change jobs and leave behind small balances in auto-enrolment (AE) schemes.
- 13 million small pots existed in 2024
- 3 million have been added since 2020
- The number is expected to reach 17.5 million by 2030
- The average value of a pot worth less than £1,000 is just £330
The Government’s Response to the Small Pots Challenge: Multiple Default Consolidators (MDC) #
While other approaches were initially preferred by the industry, the government ultimately adopted the Multiple Default Consolidator (MDC) model following the 2023 consultation, where Equisoft provided expert feedback based on extensive market experience. This decision likely reflects a broader policy aimed at reducing fragmentation and encouraging the development of fewer, larger pension schemes. The MDC model is now being enacted through the upcoming Pension Schemes Bill.
Under this model:
- A small number of providers will be authorised to act as consolidators of small pots.
- AE schemes will periodically review their stock of pots and transfer eligible ones to a consolidator.
- If a member already has a pot with an authorised consolidator, the pot will be transferred there. If not, a consolidator will be assigned.
- Members retain the right to choose their consolidator or opt out.
Digital Infrastructure Requirements: The Small Pots Data Platform (SPDP) #
To support the MDC model, the government commissioned a feasibility review to define the operating structure and digital requirements of the Small Pots Data Platform (SPDP) – this describes the nuts and bolts which will allow schemes and consolidators to work together to amalgamate small pots.
Scope of pots to be processed by the SPDP:
- AE pots created since the introduction of auto-enrolment
- Within charge-capped default funds
- Less than £1,000 in value
- No contributions in the past 12 months
- Excludes pots with guarantees
Why Not Use the Pensions Dashboard Infrastructure? #
While the Pensions Dashboard Programme (PDP) is a major initiative, it’s not the right tool for this job.
- The dashboard ecosystem is member-led (B2C), whereas the SPDP is scheme-led (B2B).
- Technical components like matching logic may inform SPDP design, but wholesale reuse is not feasible.
However, that doesn’t mean there isn’t existing tech beyond Dashboards in the pensions landscape that can’t be leveraged. The wheel doesn’t need to be reinvented.
ISO 20022 and SWIFT: The Proposed Technology Behind Small Pots Consolidation #
The feasibility review rightly identifies ISO 20022 messaging over SWIFT as the preferred communication channel for the SPDP. This approach offers a familiar, accessible, proven, and cost-effective solution for the pensions industry.
- SWIFT handles over 45 million messages daily across global financial services, demonstrating its scalability and reliability.
- ISO 20022 is already used for account transfers of ISAs, GIAs, and pensions, as well as the resulting in-specie asset re-registrations. It’s also the default mechanism for UK pension fund trading.
- In the transfers space, the infrastructure is already supported by over 400 brands in the UK, many of whom are pension providers who would also use it for small pots consolidation. It’s a well-established and interoperable foundation for SPDP operations.
By using SWIFT and building on existing standards and infrastructure, an accessible federated delivery model can be built that doesn’t require costly central infrastructure that would inevitably cause delays and significant expense – just look at the government’s history of delivering projects involving centrally procured systems!
What is the Small Pots Consolidation Message Flow? #
The review outlines a proposed solution with clear steps that schemes and consolidators would follow.
Step 1: Ceding Scheme Initiates Enquiry #
The ceding scheme identifies an in-scope small pot and sends consolidator enquiry messages to each of the approved consolidators.
Only a small list of authorised consolidators needs to be maintained.
Each enquiry message contains all the necessary details for the consolidator to identify a potential match.
The proposal recommends using the ISO 20022 SESE.019 message – an Account Holding Information Request, already widely used in the UK transfer market for valuation requests.
Step 2: Consolidators Perform Matching #
Upon receiving the enquiry, each consolidator applies defined matching rules to their records to determine:
- Match
- Possible Match
- No Match
Step 3: Consolidators Respond #
Each consolidator sends a response back to the ceding scheme.
The scheme waits for all responses before proceeding.
The ISO 20022 SESE.011 message – a status report – is proposed for this step. It is already used extensively in the UK market to communicate acceptances, delays, rejections, and completions.
Based on the responses:
- If a single match is found, the pot is consolidated (Step 5).
- If no matches are found, the scheme assigns a consolidator using a carousel approach (Step 5).
The review discusses the potential requirement for a more complex and favoured weighted carousel, rather than a truly random round robin approach. Equisoft sees this as needless complexity that does not add any value to the process at all – given the volume and similarity of the pots in scope, and the limited number of consolidators; over time, such a strategy will self-balance.
Step 4: Complex Matches Handled #
Multiple Matches:
- A pot size enquiry message is sent to each consolidator that confirmed a match.
- Consolidators respond with the current value of the matched pot.
- The pot is assigned to the consolidator with the highest value, and the transfer proceeds (Step 5).
- Equisoft challenges the complexity of this step and the fact that the pot size could be shared as part of the original match response from the consolidator
Possible Matches
Two options are proposed
- Option 1: Ceding Scheme Responsibility
- Treat the possible match as a match failure.
- The ceding scheme reviews mismatched data fields and fuzzy matching logic. It may attempt to improve data quality or retry the match after a defined period.
- Unresolved cases are retained for regulatory reporting.
- Option 2: Consolidator Responsibility
- Transfer the pot to the consolidator into a new account.
- The consolidator applies internal processes (e.g., third-party data verification) to determine if the new account can be merged with an existing one.
- If inconclusive or mismatched, the new account remains as a separate default pot.
Step 5: Consolidator Notified and Transfer Initiated #
The ceding scheme sends a consolidation request message to the selected consolidator.
The consolidator instructs the transfer, as the acquiring party typically would during a transfer.
The feasibility review did not specify the exact transfer mechanism, which remains a critical area for further definition.
Key Takeaways – The Equisoft View #
As a long-standing contributor to industry standards and digital transformation in pensions, Equisoft offers the following reflections on the feasibility review.
| 1. Standards Must Be Defined Early – and Maintained |
|---|
| Getting a governance body in place to define and maintain technical standards is critical. Equisoft has deep experience in this area, and we know that reaching consensus among multiple stakeholders with differing priorities takes time. While the SPDP may not require frequent changes, future shifts in policy or market dynamics could necessitate updates to messaging standards, matching logic, or governance protocols. This is not a “set and forget” initiative. |
| 2. Keep the Carousel Simple |
|---|
| We believe the feasibility review’s proposed weighted approach to assigning consolidators is unnecessarily complex. A truly random assignment by each scheme would, over time, result in fair distribution due to the sheer volume of pots. If providers need reassurance, governance and reporting mechanisms could offer transparency, but we see no compelling reason for a more sophisticated system than a simple round-robin or randomised allocation. |
| 3. Remove the Requirement for Pot Size Enquiry Messages |
|---|
| The feasibility review proposes that when multiple consolidator matches are found, a follow-up request should be made to determine the size of the existing pots—so the new small pot can be assigned to the consolidator holding the largest one. We believe this is an unnecessary and inefficient step. Instead, the value of the existing pot could simply be included in the initial match confirmation message from the consolidator. While the review suggests this would reduce unnecessary data sharing, we feel this concern is overstated, given: - The security and trust provided by the SWIFT network - The fact that all parties involved—consolidators and ceding schemes—are highly regulated entities - These entities already have existing relationships with the member - The clear operational need for this data to support a streamlined and effective process Adding an extra round of messaging introduces complexity and delay, without delivering meaningful benefit. A more straightforward approach would better serve the goals of efficiency and scalability. |
| 4. Mandate the Transfer Mechanism |
|---|
| Most importantly, the review did not address the actual pension transfer mechanism—it must be mandated. With 300+ schemes, transferring three-quarters of a million pots a year, to 5-10 different consolidators, relying on bespoke or inconsistent transfer processes is unworkable. Today, pensions are transferred using a variety of mechanisms, including: - Slow and manual postal and email-based processing. - Use of expensive, proprietary and restricted electronic cash pension transfer solutions. - UKETRG open and interoperable electronic transfers over SWIFT using ISO20022, backed by the legal and trust framework of TeX. Pensions are often a mixture of all of these points. A mandated single, automated, and cost-effective transfer mechanism is essential to complement the SPDP and ensure operational success. The obvious and only viable choice here is UKETRG. It flows logically using the same proposed SPDP ecosystem and is the only solution that can offer cost-effective scale. |
What's Next for Small Pots Consolidation in the UK? #
Equisoft welcomes the review’s findings and supports the MDC model as a scalable, cost-effective solution. By leveraging existing standards and avoiding unnecessary centralisation, the industry can make real progress in solving the small pots problem, benefiting providers, schemes, and most importantly, members. We now need to see action to start defining the standards, agreeing on matching rules and for the industry to get together and start building proof of concepts.
Glossary #
- SPDG – Small Pots Delivery Group
- SPDP – Small Pots Data Platform
- MDC – Multiple Default Consolidator
- AE – Auto-Enrolment
- SWIFT – Society for Worldwide Interbank Financial Telecommunication
- ISO 20022 – The global financial industry standard for electronic communications
- UKETRG – UK Electronic Transfers and Re-registration Group
Frequently Asked Questions #
1. What is the UK small pots problem in pensions?
The UK small pots problem refers to the growing number of small, inactive pension pots created when workers change jobs and leave behind small balances in auto-enrolment schemes. As of 2024, there are 13 million small pots with an average value of just £330 for pots under £1,000, a number projected to grow to 17.5 million by 2030.
2. What is the Multiple Default Consolidator (MDC) model for pension consolidation?
The Multiple Default Consolidator (MDC) model is the UK government's chosen solution, where a small number of authorized providers act as consolidators for eligible small pots (under £1,000 with no contributions in 12 months). Auto-enrolment schemes periodically transfer these pots to consolidators, either to where members already have existing pots or through assigned allocation, though members retain the right to choose their consolidator or opt out.
3. How does the Small Pots Data Platform (SPDP) work?
The Small Pots Data Platform (SPDP) uses ISO 20022 messaging over SWIFT to enable pension schemes and consolidators to communicate and transfer small pots through a five-step process: enquiry, matching, response, complex match resolution, and transfer initiation. This approach leverages existing infrastructure already used by over 400 UK brands rather than requiring costly central systems.
4. Why can't the Pensions Dashboard be used for small pots consolidation?
The Pensions Dashboard is member-led (business-to-consumer) for individuals to view their pensions, whereas the Small Pots Data Platform requires a scheme-led (business-to-business) approach for automated bulk transfers. While some technical components like matching logic may inform SPDP design, the different use cases and operational requirements mean the dashboard infrastructure cannot be repurposed for small pots consolidation.
5. What transfer mechanism should be used for small pots pension consolidation?
With over 300 pension schemes responsible for transferring approximately 750,000 small pots annually, UKETRG (UK Electronic Transfers and Re-registration Group) should be mandated as the single transfer mechanism. It uses the same ISO 20022 messaging over SWIFT ecosystem proposed for the SPDP and offers the only cost-effective, scalable solution for handling the required volume of automated transfers efficiently.
