The UK Government has revealed significant plans to consolidate small pension pots, potentially increasing retirement savings for the average worker by £1,000.
Announced on 24 April 2025, the initiative targets the 13 million small pension pots worth £1,000 or less, which are growing by around one million annually. This reform, introduced as part of the Pension Schemes Bill, aims to simplify pension management and reduce high administrative costs for savers and the pensions industry.
Why Pension Reform Matters
Small pension pots often arise from auto-enrolment into workplace pensions. When individuals change jobs, they frequently leave behind small, inactive pots and start new ones with their next employer. Over time, these can accumulate into multiple inefficient pots that are harder to manage.
The proposed reform will automatically merge small pension pots into a single, high-performing pension scheme managed by authorised workplace providers. This measure is expected to save the pensions industry £225 million annually in administrative costs, money that currently erodes savers’ funds.
Torsten Bell on Pension Reform
Pensions Minister Torsten Bell has highlighted the importance of these changes, stating:
“It’s great news that more people are saving for their retirement. But I want to make pension saving as simple and rewarding as possible.
“There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year.
“We will automatically bring together people’s small pots into one high-performing pension, reducing costs as well as hassle for savers. In time, this could boost the pension of an average earner by around £1,000 as part of our Plan for Change to put more money in people’s pockets.”
This consolidation will not only streamline retirement planning but also make it easier for savers to track their pensions and avoid unbalanced fees typically associated with smaller pots.
While the Government estimates a £1,000 boost for the average earner, savers will retain the option to opt out if they prefer to keep their pots separate.
What You Can Do Now to Manage Your Pensions Better
You don’t have to wait for the Government’s scheme to take control of your pensions. Small pots are often lost or forgotten, especially when people move house and fail to update their address with pension providers.
Here are some practical steps to consolidate and maximise your retirement savings today:
- Find Lost Pensions
Use the Government’s free pension tracing service to track down forgotten pension pots. You’ll need information such as your former employers’ names or pension provider details. Alternatively, you can contact previous employers or pension providers directly to recover missing funds.
- Assess Pension Consolidation
Combining your pensions into a single plan, such as a self-invested personal pension (SIPP), can help lower fees and simplify management. However, before consolidating, check for exit fees or valuable benefits, such as final salary provisions, that you could lose by transferring.
- Get Professional Advice
For more complex pensions or larger savings, seek advice from a regulated financial adviser. They can help you understand the implications of consolidating pensions and ensure that your strategy aligns with your long-term retirement goals.
Start Preparing for a Secure Retirement
Taking action now can help you better manage your pensions, reduce administrative hassle, and maximise your savings. Whether through consolidating small pots or seeking financial guidance, these steps can help you build a more secure financial future.
If you have any questions or wish to explore your options, reach out to us. Our team of experts is ready to assist you. please don’t hesitate to contact us on 0333 241 3350 or email info@richmondhousewm.co.uk
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