Two in five master trust memberships could be eligible for consolidation due to individual members having multiple pots across different providers, a major new study has found.
A data project led by the Pensions Policy Institute (PPI) and featuring Nest, Legal & General, Now Pensions, Smart Pension and The People’s Pension found that there were a significant number of individuals with pension pots with multiple providers.
In its Pensions Data Project report, published this week, the PPI said the work showed “there is a significant chance when a provider sees a new member that they are already on the books elsewhere”.
Following the project’s record matching exercise, the study found that there were 16.6 million unique individuals represented in the study from 21.7 million memberships. More than 8 million memberships – 38% of the total – were identified in at least two providers, indicating an individual with more than one pension account.
The study – which began in 2019 – will publish its next report later this year looking at active and inactive pension pots. It also plans to establish a “comprehensive database” and to expand participation to include other parts of the pensions industry and data from other types of pension schemes.
How they did it
The Pensions Data Project collated membership data from five master trusts across four years, from 2019 to 2022. This predominantly related to national insurance numbers, surnames and dates of birth.
The information was anonymised to ensure the data was protected, while still allowing the researchers to match individuals’ records where they appeared more than once. The data was fully encrypted throughout the study.
In total, the study analysed more than 76 million individual records from the five master trusts.
Data quality ‘consistent and high’
The five master trusts provided anonymised data covering 21.7 million memberships, with 76 million individual records supplied from across the four years of the study.
Of these, 98% of the records were deemed “clean”, meaning they had valid identification features – a national insurance number, date of birth, surname, or a combination.
However, this still meant that more than 1.6 million records were “invalid” as they did not have these identifying features. Most of these invalid records were due to incomplete or incorrect national insurance numbers.
Overall, the PPI’s report stated that quality of data across the five master trusts in the study was “consistent and suggests a high degree of accuracy and quality”.
This meant that, when attempting to match individuals’ records between providers, many would require no further identification work. However, many others would require further work to verify potential matches.
The report also noted that “the matching rate has remained consistent across the four years, with no significant improvements or declines”.
Implications for small pot consolidation
One of the key aims of the study was to identify areas of focus for future policy, including the consolidation of small pots.
The PPI’s report stated that, overall, there was a “low risk” of the wrong pots being merged if “strict matching criteria” were used to match different pension accounts that belong to the same person.
However, the study still found a “large number of bad and partial matches”, meaning that there would still be a significant number of small pots. The Pension Data Project will explore this issue further in a future report.
The Institute for Fiscal Studies (IFS) this week published a separate report calling for policy action to consolidate small pension pots. It recommended that deferred pots worth less than £1,000 should be automatically consolidated, but that this should be regularly reviewed.
The IFS said savers could be paying different fees, even if they had multiple accounts with the same provider relating to different employers. It called for individuals in this situation to have their accounts consolidated into “the pot that represents the best value for money”.
“The case for… consolidation will become even greater if the DC pension market becomes more concentrated over time,” the institute stated.
Tim Gosling, head of policy at People’s Partnership, provider of The People’s Pension, said improvements in data emanating from the Pensions Data Project could lead to better decisions from providers and policymakers, as well as better outcomes for savers.
“By combining data from five leading pension providers, we have created a unique dataset that sheds new light on the success of automatic enrolment and will help resolve long-standing problems, like the consolidation of small, deferred pots,” Gosling said of the study.
“We hope that this successful trial can be expanded into a more ambitious and long-running project.”
The data study and pensions dashboards
The results of the study so far indicate that there will be “many good matches” for the purposes of displaying an individual’s multiple pensions on a dashboard, the PPI said in its report.
However, it also highlighted that a high number of partial matches “could also indicate significant traffic to providers off the back of dashboards”, as individuals seek to clarify whether or not they have accounts.
“We want schemes’ action on data ahead of dashboards to act as a catalyst for innovation, transparency and regulatory effectiveness that will benefit savers.”
Lisa Allen, TPR
“If further verification was undertaken before a member follows up with providers, this would reduce the amount of unnecessary contact,” the report stated.
Lisa Allen, director of data services at the Pensions Regulator (TPR), said preparations for the introduction of pension dashboards “should be the start of the pension industry’s journey on improved data”.
“We want schemes’ action on data ahead of dashboards to act as a catalyst for innovation, transparency and regulatory effectiveness that will benefit savers,” Allen said.
TPR calls for ‘regular data reviews’
The regulator praised the Pensions Data Project and called for more schemes to regularly review their data to improve its quality.
Allen said the study “reinforces our view that industry must be ready to embrace improving standards for data, so savers benefit from clear, accessible, and reliable pensions information”.
She added that TPR would publish its data strategy soon, in which it will set out how it plans to work with the industry “raise standards for data beyond dashboards to help drive improved outcomes for savers”.
Better data and common standards will help improve member engagement with their pensions and potentially lead to better retirement outcomes, TPR said.
It added that pension schemes “should benefit from a more streamlined approach to data collection” as well as a “reduced regulatory burden”.
The full report is available on the Pensions Data Project website.
