Reducing the number of small pots through automatic consolidation to a selected group of scheme members will result in those members having fewer pots and reduce the burden for those members to keep track of them.  By consolidating the number of small pots, it provides the incentive for more people to engage with their pension as they will reach a more meaningful amount more quickly.

In terms of benefits to the industry, reducing the number of small and micro pots should see a reduction in the costs of administering pensions, which can only be good.

Clearing house

We are also glad to see that the proposals strongly favor the creation of a clearing house to facilitate the efficient movement of small pots to the appropriate default consolidator.

By having a clearing house, each pension provider with workplace pensions will only have to connect to one service to meet their obligations; by incorporating a clearing house to provide these services, the cost to the industry and timeframe of implementation will be

A key feature of a clearing house is data connectivity via a tightly governed network, which provides extensive market coverage.  The clearing house will be able to identify where the pot should be sent based upon the rules set out in the recent proposals.  This takes away that issue from the individual pension funds. Transferring the small pot balances can also be catered for by the clearing house taking away payment complexities for the pension fund.

Possible other uses for a clearing house

We also suggest that consideration should be given to passing more of the process of moving pots to the clearing house.

A primary concern across the industry is the time and cost of transferring pots.  This is especially acute when considering small pots, as the cost to transfer a £100,000 pot is essentially the same as for a £100 pot.   Previous research suggest that this cost could be between £30 and £50 per transfer.

Clearing houses exist today in other pension markets which prove the capability (both operationally and technically) as well as the positive outcome for pension funds and members. Clearing houses operate in other markets with similar objectives as Value for Money,  which requires clearing house providers to operate efficiently and at a competitive cost.

We suggest that any clearing house model be designed to allow it to be further leveraged over time.   For example, a clearing house can also be used for other pensions transfers or as the end solution for the recently proposed pot for life changes and finally in providing true member choice where we see ~43% of member contributions being paid to a fund of choice.

By considering wider use cases from outset, whilst ensuring that it meets the current need of small pots consolidation, a clearing house model will provide future benefits to the UK pensions industry and ultimately to UK pensions savers.


Our experience with Clearing houses

At SuperChoice we know a lot about the benefits of a clearing house.  That’s because we are a key part of the clearing house system that runs in Australia for the Superannuation pensions system.  Over 50% of all superannuation payments are made through our system, that’s over 40 million transactions a year.

This vital service makes sure that “Super” payments are quickly and efficiently paid to the right funds under the Australian member choice system.   Without this sort of clearing house, it would not be possible to have implemented the member choice that is the center of Australia’s pensions landscape.

In conclusion, we at SuperChoice are pleased to see that the Small Pots conversation in the UK is moving forwards and is going to put a clearing house at the heart of that solution.   Our experience with clearing houses shows that these provide real benefits in terms of efficiency and ease of delivery.   We look forward to working with the industry to make this a reality.