In This Article:
There are millions of small pension pots littering the system. It’s an unwelcome consequence of auto-enrolment, whereby you are automatically put into a pension at work, but as we move from job to job, we accumulate more of them.
So what should be done about them?
What the government is planning to do
The government estimates there are more than 13 million small pots in the system and wants to introduce what’s known as a Small Pots Data Platform, which will scoop up pots worth less than £1,000.
The idea is that all small pots linked to you will go to one provider, making it easier to keep track of them.
Used alongside the long-awaited Pension Dashboard, these reforms could transform people’s retirement by enabling them to see their pensions in one place. By giving a better idea of what your whole pension wealth is, you can make better retirement decisions as a result.
Read more: UK pensions dashboard: What is it and when will the tool be available?
The idea is that the Small Pots Data Platform should be up and running by 2030, with the Dashboard coming into a play a few years earlier.
How government reform could go further
The reforms spell good news for pension savers, but retirement experts at financial services company Hargreaves Lansdown would like them to go further.
The infrastructure built for the Small Pots Data Platform could be used to facilitate a Lifetime Pot model.
This is where the member chooses which provider receives their contributions regardless of where they work. It means they keep one pension with them through their career and deals with the small pot issues at source so it could prove to be a valuable option.
What you can do now
If all these reforms seem like too far away there are things you can do to keep track of your pensions.
Make a list of everywhere you have worked and check to see if you have pension paperwork for them.
Read more: Ignoring this form could delay pension inheritance and risk 40% tax
If you don’t, then call the Government’s Pension Tracing Service. All you need is either your employer’s name or that of the provider and they can give you contact details. You might find a pension worth thousands of pounds that makes a big difference to your retirement.
Once you’ve tracked down all your pensions then it might be worth consolidating them. This can make it easier to manage your pensions and cut down on time and administration.
However, before you do so, you should make sure that it is in your best interests to merge these pots. For instance, you may incur expensive exit penalties by moving pension providers. You may also find that you potentially miss out on important benefits such as guaranteed annuity rates by making a switch. It’s also well worth saying that it rarely makes sense to transfer out of a defined benefit pension.