Forgotten pension pots are costing UK workers millions, with an estimated £31 billion currently unclaimed.
This equates to approximately £931 for every working person, according to Lizzy Holliday, director of public affairs and policy at now pensions.
Auto-enrolment, requiring employers to contribute to pensions for eligible employees (typically those over 22 earning £10,000 or more annually), has led to a proliferation of plans, particularly among younger, job-hopping millennials and Gen Z workers.
While beneficial, these plans often lie dormant when individuals change jobs, accumulating and easily forgotten.
Holliday notes, "If you’ve been working for a while, it’s highly likely that you will have accumulated several workplace pensions with previous employers and may have lost track or don’t remember whether you had a pension with any of them." Experts recommend consolidating these scattered pensions into a single, manageable plan to maximise long-term financial security.
But how do you do that, what should you consider before doing it, and what potential downsides should be kept in mind?
Let’s take a look – please note that nothing detailed herein constitutes individual financial advice, and it is highly recommended that you source advice before taking any action. Pensions are a long-term investment and your capital is at risk.
How to consolidate auto-enrolment pensions
Consolidating your pensions essentially means merging your different pension pots into one, giving you a combined sum that can be easily managed in one place. The traditional method is to do it manually by gathering information on all of your pensions and doing the necessary paperwork to get them moved over to the singular plan you want to use.
“When it comes to consolidating, the first step is to gather all the information about your existing pensions,” says Fiona Peake, personal finance expert at Ocean Finance. “Make sure you have up-to-date details for each one, such as the provider, the value of the pension, and the terms of the scheme. You can usually do this by checking your annual pension statement or contacting your previous employers or pension providers directly.”
Once you’ve gathered all of this information, you will then need to request a pension transfer form from each one, complete them, and submit them for transfer. Before you can do that, however, you have to decide to where all of those pots should be transferred.
“Once any pensions have been tracked down, employees should look at their different providers, pension savings and protections with existing pots that they may have and decide whether and where to consolidate their pensions,” says Holliday. “They can do this by asking a pension provider to consolidate their pots for them.” As Holliday says, some pension providers, such as PensionBee and Aviva, can do much of the legwork on your behalf.
However, it’s important to take stock before pulling the trigger. “Consolidating pension savings isn’t always the right solution, and savers should consider the pros and cons as well as seeking advice if needed,” adds Holliday. “The UK government-backed MoneyHelper service is another great resource with lots of helpful guidance on its website.”
What should you consider before making the switch?
As Holliday says, there are pros and cons to consider before consolidating your plans. Many of these are specific to the plans you already have and any additional benefits they may offer, but your own long-term financial plans and goals need to be factored-in, too.
First up, find out whether any of your existing plans are in lifestyle funds. These funds automatically adjust your investments as you approach pension age, often by directing them to more low-risk options. If this suits your long-term plans, check whether the target pot provides this option. If you prefer to manually select where your funds are invested and your preferred risk level, check whether the pot you’re consolidating into provides this level of control.
Additional benefits may also apply to your old pension plans that are worth retaining. “Another consideration is whether your current pensions come with valuable guarantees,” says Jono Randell-Nash, independent financial adviser at MWA Financial Advice. “Features like enhanced life or death benefits, guaranteed annuity rates, or scheme-protected tax-free cash may be lost when transferring, so it’s essential to understand what’s at stake.”
We’ve already touched on checking that your target pension plan provides the control and oversight options that you want, but there’s more besides these to consider. A major one is where and how your funds are invested, and whether the plans offered by your new main pension provider suit your preferred risk levels and ethical considerations. For example, if you want your funds to be invested in green solutions rather than gas and oil, check whether there’s an investment plan that meets this aim.
Fees are another essential element to understand before making the switch. “Look closely at their charging structures – are their fees transparent and competitive?” says Randell-Nash. “Beyond that, be aware of any penalties or hidden charges associated with consolidating, such as exit fees, switching costs, or adviser fees. If you’re comfortable with the fees, make sure they are appropriate for the level of service and management your new pension offers, including any ongoing plan or annual charges.”
Tax-related issues are another thing to consider, and again it’s recommended to seek expert advice to assess your own situation and circumstances. Annual contribution limits and inheritance tax are just a couple of factors that need proper consideration before consolidating your pensions.
How to track down lost pensions
If you’ve lost track of any pensions, you’ve got a few options available to get them back in sight.
“We are looking forward to seeing further progress from the Government’s Pensions Dashboard Programme, which will enable savers to see all their pensions savings in one place,” says Holliday. “In the meantime, the Pension Tracing Service is a free-to-use service that can help employees to track down their old workplace pensions. The Pension Tracing Service will provide you with the contact details of the pension’s administrator where you might have a pension pot. You’ll then need to contact the provider to find out whether you have a pot with them and the value.” The Pension Tracing Service is accessible here or by phone at 0800 731 0193.
Other options include contacting your former employers to check which schemes they use, and then follow up with the relevant providers. Provided you’ve got your National Insurance number and personal details to hand, the providers will be able to find and restore your access. Some providers, such as PensionBee, can find and consolidate your pensions even if you only know the name of a provider you’ve had previously.
The bottom line
You should now have a good understanding of what pension consolidation is, how to do it, and what you should consider before rolling your pensions into one place. While the benefits of having everything in one, easily-managed platform may seem like a no-brainer, it’s important to exercise caution lest you inadvertently encounter fees or lost benefits that you weren’t expecting.
As already mentioned, it’s important to seek expert advice and guidance before making any changes. You’ll be glad to have all your auto-enrolments present and accounted for, but you’ll be even happier to have done it without any nasty surprises.
*31.1 billion divided by 33.37 million (working population) is around £931 per working person, House of Commons Library, UK Labour Market Statistics – 15th October 2024.
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