Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss clauses 22 to 26 stand part.

I beg the Committee’s patience, as a number of clauses are grouped here—Members can thank the powers that be for that—and I will run through them all.

Clause 21 enables the Government to introduce a small pots data platform. This platform will be responsible for determining where each small dormant pot should be consolidated. It will ensure that decisions about where pots should go are made consistently, transparently and with the members’ best interests in mind.

International evidence from other countries, such as Australia, with similar pension systems to the UK has shown that a central platform improves consolidation outcomes, rather than just putting duties on schemes to sort it out. This clause establishes the framework to allow for the necessary infrastructure to be built to support data matching and pot consolidation. The Government believe that the infrastructure will be required to support pension schemes to deal with the volume of small pots that left the hon. Member for Wyre Forest aghast five seconds ago, effectively and efficiently.

As Members may know, we recently worked with Pensions UK, who have undertaken a feasibility review to examine and assess the technical requirements of the small pots data platform. The Government will consider that work as part of our next stages in developing the necessary infrastructure and the underpinning legislation. However, before committing to how best to deliver this infrastructure, we must undertake that full and proper assessment of capabilities.

Clause 22 enables the Government to ensure that members are properly informed about any action that is taken to consolidate their small dormant pension pot. Transfer notices will be the key point of communication between the scheme and the member. We have not had the time to make this point yet, but obviously it will be up to members to opt out of consolidation should they so wish.

How will members know that they have that opt-out? Will that be clear enough, given all the comments we have been making on financial education? People have got to be pretty engaged, and we know from the history that they are not always that engaged in their future.

That is an important question. The communication to members will be standardised, by providing the key information that has to be provided and the option of an opt-out—so it will be explicit that they have the option to opt out of the consolidation process—as well as their alternative options, for example moving their fund into another consolidator. I hope that that answers the question.

The notice is of high importance, because receiving that key information is basically the only point at which the member is informed about what is happening to the financial transaction—the Government are not generally in the business of legislating to change people’s financial arrangements without their consent. Clause 22 will ensure that schemes are bound by regulations to send prescribed information that will enable a member to make the decisions, for exactly the reasons that the hon. Lady set out.

Clause 23 will introduce an important safeguard in the broader framework for consolidating small dormant pension pots. It recognises that although automatic consolidation will benefit the Majority, it may not be right for everyone and in all circumstances. The Bill aims to streamline pension savings and reduce fragmentation across the industry, but the clause ensures that members’ interests remain at the heart of the process.

Under the clause, a small dormant pension pot may be designated as exempt from automatic transfer if two key conditions are met. First, the pot must satisfy certain prescribed conditions, which will be set out in regulations. Secondly, the trustees or managers of the scheme must determine that it is in the best interests of the individual or a class of individuals in their scheme for the pot to remain where it is.

That is a vital member protection and safeguard. It recognises that although consolidation is generally beneficial, because it reduces administrative costs, there will be circumstances in which transferring a pot may not be in the member’s best interest. The clause provides the ability for the scheme to make that clear and not to transfer in those circumstances.

Does the Minister have any hypothetical examples? I am not asking him to commit to anything being a prescribed condition, but just to give us some examples so that we have an idea.

That is a fair question. The most prevalent example will be people whose existing pot, although small, has unusual and valuable guarantees attached to it, or benefits that they would lose if they transferred into the default fund of another provider. That is likely to be the most common use of the Clause. The clause will provide for transparency by allowing regulations to be made to set out in more detail how those decisions and others will take place.

Given the admin costs and unprofitability of small dormant pots, we do not expect schemes to abuse this exemption. For the benefit of people who do not spend lots of time looking at these matters, I should say that lots of schemes are happy to see small pots go, because they are expensive for them to operate; they are neither in the provider’s interest nor in the saver’s. This clause strikes a careful balance.

Clause 24 will ensure that pension savings are not left idle, requiring all eligible pots to be held by a default consolidator. As Members will know, millions of workers accumulate small pension pots as they move between jobs. Specifically, the clause will allow for the transfer of those dormant pots without requiring active consent—again, that is something that Governments do not do lightly, but it is required by the best interests of savers in these cases—where a transfer notice has been issued and no objection received from the member, as I set out in relation to clause 22.

If a member does not opt out, the trustees and managers of the scheme are required to act on the transfer notice and transfer the pot to the designated consolidator. Clause 24 also provides legal certainty, because it will empower schemes to consolidate pots even if doing so breaches existing scheme rules. That removes administrative barriers and places the member’s interest at the heart of the system.

Clause 25 plays a role in providing legal clarity and continuity for individuals whose small dormant pots are transferred. The clause sets out what happens when a pension pot is moved to a different pension scheme or a different arrangement within the current scheme. This ensures that an individual’s membership status, rights and obligations are automatically and seamlessly updated at the point of transfer—so it is not just that a member’s pot has been transferred, but that they have become a member of the scheme that they are entering, even though they have not signed up to a contract explicitly in so doing. This means that they automatically acquire all the rights and responsibilities that come with that membership. In schemes where membership results in a new contractual relationship, the clause will deem that a new contract is formed at the point of transfer.

Clause 26 will play a critical role in ensuring that the transfer of small pots to consolidating schemes is undertaken in a legally robust and administratively efficient manner. By establishing clear timeframes for transfers, it will allow for the safe and effective consolidation of small dormant pension pots.

This clause introduces two key timing rules. First, it mandates the minimum 30-day notice period before any transfer or change of arrangement can take place. That gives individuals the opportunity to review the proposal and respond. That time period is aligned to the approach taken for members who wish to opt out of automatic enrolment.

Secondly, the clause sets out a maximum one-year deadline for completion of the transfer or change of arrangement. It provides clarity and operational certainty for pension schemes and savers. That also enables schemes to maximise the use of bulk transfers, supporting a lower-cost and more efficient transfer process, rather than having shorter deadlines that force them to move individuals in small batches. It also ensures that the small pots consolidation framework remains responsive and co-ordinated. If trustees and scheme managers are waiting for proposals from the small pots data platform, the transfer period can be extended. This clause strikes the right balance by protecting savers and making sure they have time to act, while also providing an impetus for timely action in the consolidation process.

I am grateful to members of the Committee for listening to all those points, and I commend clauses 21 to 26.

I have a couple of questions on the small pots data platform. On Second Reading, I raised issues about the pensions dashboard and the fact that after a significant length of time, it has not yet appeared. I appreciate that lots of people have been doing lots of work on it, but we do not have it yet.

It is vital that the small pots data platform exists and works in order for small pots consolidation to happen. Can the Minister give us some comfort that it will materialise and work? If there is a possibility of any errors in the system or the data is not correct—if the platform is not absolutely spot on—there is the risk of significant problems being created. Is he convinced that enough investment will be made in the data platform for it to work, and that it will be incredibly safe, given that it will potentially have—like the pensions dashboard—significant amounts of data relating to individuals and money? It therefore needs to be as safe from cyber-attack as possible, if it is presumably in the cloud or another such system. I would appreciate any reassurance about that, and lastly, that it will have the required resources to work and that the Government will push to create the resources if they are not there and the timeline is beginning to lag.

I thank the hon. Member for those questions. She is right to mention the dashboard, and I will say two things about that. First, although these are different systems, there are lots of learnings from the process—as we heard from Chris Curry on Tuesday—not least the impetus that it has provided to schemes to make sure they have put all their record keeping in order. For them to be able to engage with the dashboard, they now have a legal requirement to have that data in a standard format. It is also about how the central system works, but it will be a different system, so the hon. Member is right to raise those questions.

I do not want to offer her total certainty because that is not available to me for a scheme that is looking to be operational in the next decade. We have intentionally left that longer timeline for exactly the reasons that the hon. Member has outlined. I can reassure her that very extensive engagement has been going on with industry about this. I mentioned the feasibility study, but there has also been heavy engagement, including on the security element that she mentioned. That is absolutely key, and lessons definitely have gone through from the dashboard approach to make sure that we are happy with how that will take place. I hope that provides her with some—if not perfect—reassurance.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clauses 22 to 26 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned—(Gerald Jones.)

Adjourned till Tuesday 9 September at half-past Nine o’clock.

PSB61 Sandra Fogwill

PSB62 Isio Group Ltd

PSB63 Peter Weston

PSB64 Arnold Hay

PSB65 Mercer Now Pensions

PSB66 Keith Appleyard

PSB67 City of London Corporation

PSB68 John Tissington

PSB69 Hymans Robertson

PSB70 New Financial (supplementary)

PSB71 Roger Sainsbury (supplementary)