The small pots problem: what you can do with yours

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It’s estimated that, without intervention, the number of small, forgotten pension pots could increase from 8 million to as many as 27 million by 2035. But what is a small pot? And how can you stop this becoming a problem for you?

What is a ‘small pot’?

Simply put, a small pot is a pension plan worth £10,000 or less.

What is the small pot problem?

Auto-enrolment has helped millions of people save for retirement through their job without having to think much about it. The concept is pretty simple: when you start a new job, a workplace pension plan is set up for you and you automatically start paying some of your salary into it (unless you choose to opt out or aren’t eligible). And your employer will pay in some too. So, what’s the problem?

The issue is that some people change jobs fairly frequently. Meaning they could change jobs again in a few years’ time and completely forget about the pot of money they built up with their previous employer. So the pot remains dormant and its value can get slowly eaten away by various admin charges or fees from their old pension provider. They start a new job, and the cycle continues. 

Eventually, they could end up with their pension savings spread out over several ‘small pots’ which they’ve lost track of over time.

How can I check if I have a small pot?

To track down any old pension plans, you’ll need:

• Your National Insurance number
• Names and addresses for your previous employers

Plug this information into the government’s Pension Tracing Service and you should get the information you’re looking for. 

It’s worth checking for old pension plans linked with all of your previous jobs, even if you were only there for a short amount of time. It all adds up and could make a difference to the amount you have to retire with.

What can I do with my small pots once I’ve tracked them down?

Consider combining them

Once you’ve found your old pension plans, you could consider bringing them together. Having one place for your pension money could give you a clearer picture of your future. It could also make it a lot easier to manage and keep track of your money and could cut down on the amount you’re paying in charges. 

Combining pensions isn’t right for everyone though, so make sure you won’t be losing any valuable benefits or guarantees by transferring. You can find out the pros and cons of combining your pensions in our article.

A pension transfer isn't right for everyone, and make sure to consider your options before transferring

Think about withdrawing it

If you’re aged 55 or over (rising to 57 in 2028), you could also consider taking your small pot as a lump sum. 

If your pot is worth £10,000 or less, you can take it all at once. You can do this three times (up to £30,000 total) and it won’t affect your lifetime allowance or your pension annual allowance. You’ll get 25% tax-free and the remaining 75% will be taxed as income. 

Keep in mind though that, because it’s classed as an income, taking a lump sum could push you into a higher tax bracket, meaning you’d pay more tax on it than if you were to spread it out over smaller, regular payments. It’s best to speak to a financial adviser about it if you’re not sure. If you don’t have an adviser, you can find one in your local area at unbiased.co.uk

What can I do to stop it happening again?

A solution to the small pots problem is currently being looked at in the pensions industry – which we at Standard Life fully support – but until then, there are some things you can do.

A big reason people lose track of their pension plans is because it’s not normally front of mind. Just 1 in 25 people would think to tell their pension provider when they move home – compared to 89% of people who would think to tell their GP. For a lot of people, their pension plan isn’t something they think too much about until retirement starts to feel like it’s around the corner.

So put some time aside to get to know your pension plan better. Add ‘update personal details’ to your to-do list, regularly check on your pension investments and get a better understanding of all the benefits your pension plan has to offer. The more you see your pension plan as a key part of your overall finances, just like your bank or other savings accounts, the more in touch with it you’ll be. 

If you have a Standard Life pension, we’ve made it easy to get familiar with your plan. Simply log in online or through your app. We also have lots of useful, educational guides on our website to help you brush up on your pension knowledge.

The information here is based on our understanding in February 2023 and shouldn’t be taken as financial advice.

A pension is an investment, the value can go down as well as up and you could get back less than you paid in.