Value of lost pensions hits £31 billion – should you combine your pots?

The total value of ‘lost’ pension pots has hit £31.1 billion increased by £4.5 billion, new data published by the Pensions Policy Institute reveals*, having risen from £26.6 billion in 2022. Almost 3.3 million pension pots are now considered lost, containing an average sum of £9,470. This rises to £13,620 per pension among people aged 55 to 75.

*Source: Pensions Policy Institute, Briefing Note 138 - Lost Pensions 2024.

A combination of people switching jobs and automatic enrolment into workplace pensions is behind the increasing number of lost pensions. Automatic enrolment is often held to be one of the most successful public policies of our time and is credited with enrolling over 11 million people into a workplace pension since 2012, creating many new pension savers.

But with people switching jobs regularly – around 11 times over the course of a lifetime according to some estimates – it’s easy to see how some people end up losing track of the pension pots they have built up.

Lost pension wealth has now hit a staggering £31.1 billion, according to the Pensions Policy Institute. This means millions of people could be in danger of facing an incomplete picture when it comes to their long-term financial planning, potentially missing out on thousands of pounds of pension money they’ve lost track of.

Knowing how much they have saved in a pension and where that money is invested, is one of the most important steps savers can take to maintain a level of control over their future retirement. Only by having this overall picture can pension savers work out how close they are to achieving their financial goals, and what action they may need to take to get t*heir desired income and standard of living in later life.

The government is on the road to helping people achieve this. Pension Dashboards, once launched, will allow savers to see all their pensions in one place online, reuniting them with their lost pension wealth. But while we wait eagerly for dashboards to launch, there are important steps people can take today to track down their lost pensions and boost the overall value of their pension savings.

Should you combine your pensions?

There are plenty of reasons why combining your pensions with a single provider can be a good idea. Most obviously, a single retirement pot is much easier to track and manage than having various pensions with different providers.

You could also benefit from lower costs and charges, increased income flexibility and more investment choice by switching provider. Older pension schemes, for example, often charge more than modern pensions, while plenty of workplace schemes don’t offer a full range of retirement income options or restrict your investments to the firm’s own in-house funds.

While a charge cap of 0.75% applies to the default investment option in auto-enrolment workplace pensions today many pension policies, including older contracts or those set up outside auto-enrolment, may carry higher fees.

The impact of reducing your pension charges can be significant, particularly over the long term. Someone combining three pensions with charges of 1.5 to 0.75% could boost their pension pot by over £7,000 over 10 years or £20,000 over 20 years if they were to switch to a single, lower cost account (see table below).

Source: AJ Bell. Assumes three separate pensions of £25,000 charging 1.5%, 1% and 0.75% are combined into a single account charging 0.45%. Assumes annual investment growth of 5% before charges.

How to combine your pensions

If you do decide to combine with a single provider, assuming these are ‘defined contribution’ pensions – where you build up a pot of money which you can access from age 55 – the process should be relatively simple. Note that the minimum age you can access your pension is set to rise to 57 in 2028.

If you have a ‘defined benefit’ pension valued at £30,000 or more, you will need to take regulated financial advice before transferring. Where defined contribution savers build up a pot of money, defined benefit schemes provide an income for life from a set date, usually based on your salary and the number of years you have been a member of the scheme. Lots of providers will only accept a transfer from your defined benefit scheme where the adviser has recommended you do this.

You’ll just need to choose a provider where you can consolidate your pensions and get the details of the pension or pensions you want to transfer over. Once you’ve given the relevant details to your new provider, they should do all the legwork for you.

Before transferring any old pensions, you should check there aren’t any valuable benefits attached that you may lose or exit charges that will be applied. Your provider should be able to tell you if this is the case.

You will then need to choose where to invest your pension. When doing this, make sure you are comfortable with the risks you are taking, have a diversified selection of investments and, crucially, keep your costs as low as possible.

Many firms offer a choice of diversified funds designed to meet different risk appetites if you aren’t confident choosing your own investments.

The Pension Tracing Service is a useful tool to locate missing pensions, and some providers also may be able help. AJ Bell, for example, has a pension ‘Pension finder’ service, which allows people to find pensions and combine them into a ready-made pension account with a single annual fee as low as 0.45%.