If you’ve changed jobs in the past, you might hold multiple pension pots with different providers. These are likely to be deferred pensions – pots that you no longer contribute to, but still belong to you.
Here’s what having multiple pension pots could mean for you, and what you could do with them.
What having multiple pension pots might mean
You might be comfortable leaving your various pension pots as they are, and then drawing from them when you retire. There could be benefits to this – if the investments in your deferred pots are performing well, they might be growing faster than if you had all your money in one place (but of course investments can rise and fall at any time).
However, having multiple pension pots could also have its drawbacks. The administrative charges set by your pension provider for each deferred pot you have might be higher than the charges on your current pension. And if these charges are higher than the growth performance of your fund, your savings could decrease. Plus, it could be easy to lose sight of your savings when they're spread across multiple places.
It's important to keep track of your pension pots to make sure you don’t miss out on any retirement savings you may have built up. In the UK master trust market, the number of deferred pension pots is likely to rise to 27 million by 2035, up from 8 million in 2020.1 It’s such a pressing problem that the Department for Work and Pensions (DWP) has launched a call for evidence on small pension pots, which will explore the option of automatically consolidating some pots.2
What to do with multiple pension pots
If you have multiple pension pots – whether these are deferred or you're still actively contributing to them – there are several things you can do.
1. Review them
Once a year, your pension provider must send you a statement with information about your pension pot. If you have any statements filed away at home, dig them out and review them. This can help you build a clearer picture of your savings, their performance, and the charges for each pension pot you have.
If you don’t have any statements and think you might be missing some pension pots, it’s easy to check this using the government’s Pension Tracing Service. All you’ll need is the name of your previous employer or the workplace pension scheme name.
Once you have a note of all your pension pots, make sure to update your personal information on your accounts as soon as possible. It’s important to make sure your contact details are correct so that you’ll receive your annual statements and any important updates about your pension(s). It could also help you keep track of how your pension pots are performing.
2. Combine them
You could consider combining multiple pension pots, which might make them easier to manage. Having your retirement savings in one place could give you a better overview and let you amend your investments without having to deal with different providers. For example – it could make it easier to keep your nominated beneficiaries up to date – as you’d only need to make updates in one place.
In addition, you pay pension providers a charge for managing your money. So, combining pension pots could make it easier to see what charges you’re paying and potentially reduce the amount you’re paying – though this isn’t always the case. Make sure to check the charges you’re paying with all your providers.
Combining your pension pots may not be the best option for you. You may lose features, protections, guarantees or other benefits – so make sure you compare products before combining. It’s also important to remember the value of your combined pension pot can still fall as well as rise.
It’s up to you to decide if this is the right decision for you. If you’re not sure, speak to a financial adviser – there’s likely to be a charge for this. You can find a financial adviser near you by visiting the government's MoneyHelper website.
3. Withdraw them
If you’re aged 55 or over (rising to 57 in 2028), you can withdraw money from your pension pot as a lump sum. If you're under 55 you may be able to cash in your pension pot if you're suffering from ill health or have a protected pension age (the right to take benefits at an earlier age) due to your occupation.
If your pot is worth £10,000 or less, you may be able to take it all at once – referred to as a ‘small pot’.3 You can usually do this three times, up to £30,000 total. Small pots aren’t tested against the Lifetime Allowance (the amount you can save in pension pots in your lifetime before incurring significant tax charges when you come to withdraw it). This means any money you withdraw as a small pot won’t count towards the amount you’ve used up of your Lifetime Allowance. The current Lifetime Allowance is £1,073,100 – but the allowance will be abolished from April 2024.
With each small pot you withdraw, you’ll receive 25% tax free, with the remainder being taxed at your standard rate of income tax.3 You can find out what your rate of income tax is on the government's website. This information is based on our understanding of current taxation law and HMRC practice, which may change.
Take control of your retirement savings
All in all, there’s no need to worry if you have multiple pension pots. But taking action now could save you some hassle later on and give you a clearer view of how you're progressing towards your retirement goals. There are several options available to you, so consider which best suits your needs and speak to a financial adviser if you need further guidance.
If you have multiple pension pots and are likely to change jobs again in future – staying on top of your pension pots now could give you even less to worry about to keep on track with your plan.