Millions of Britons are at risk of undermining their own retirement security due to a growing epidemic of forgotten and fragmented pension pots. New data reveals the staggering scale of the problem, driven by modern work patterns and the auto-enrolment system.
The Rise of the Dormant Pension Pot
Gone are the days of a job-for-life and a single, growing retirement fund. Today, frequent job changes and flexible working mean workers are accumulating multiple small pension accounts, many of which are quickly abandoned. Data from Nest, the UK's largest workplace pension scheme, shows it holds 13.7 million accounts, but only 3.88 million are currently receiving contributions. The remaining near-10 million are dormant.
"The days of people being wed to one or two employers over their working life are long gone," explains Clare Moffat, pensions and tax expert at Royal London. "For younger people today, it's not unrealistic to think they might build a dozen pots over their lifetime."
This fragmentation is a direct, if unintended, consequence of the successful auto-enrolment policy introduced in 2012. Every time someone starts a new job with a new pension provider, a fresh pot is created. If earnings later dip below the £10,000 eligibility threshold, contributions pause, leaving another small, inactive pot behind.
Why Multiple Small Pots Are a Problem
While auto-enrolment has brought millions into pension saving, the proliferation of tiny accounts creates significant downsides for savers.
George Bonello, head of pensions at InvestEngine, warns: "Thirteen years after the introduction of automatic enrolment... the proliferation of multiple small pension pots should serve as a wake-up call. This results in lower visibility and control, and greater administrative difficulty in planning for retirement."
The core issues are threefold. First, managing multiple pots often means paying multiple sets of fees and charges, which can erode savings. Second, performance can vary wildly between providers, meaning some pots may be poorly invested. Third, and perhaps most critically, it becomes incredibly easy to lose track of savings altogether, making it nearly impossible to get a clear picture of your retirement prospects.
The demographic most affected are lower and mid-income workers, who often move in and out of eligible roles. Sarah-Rose Burke from Nest notes their average member earns £24,000 per year, with many in seasonal or shift work, leading to frequent changes in eligibility.
Taking Control: Steps to Consolidate Your Savings
Despite the systemic issue, there are practical steps every saver can take to regain visibility and control over their retirement funds.
The first crucial step is to find all your pension accounts. Your current employer can identify their workplace pension provider. For old pots, the government's free Pension Tracing Service is the essential tool to track down forgotten savings.
Once you have a complete list, consider consolidation. Combining several small pots into one larger plan can simplify management, reduce fees, and improve investment oversight. However, it is vital to check the charges and any valuable guarantees (like protected tax-free cash or guaranteed annuity rates) attached to your existing pots before moving anything. Free, impartial guidance is available from PensionWise, online or on 0800 011 3797.
For those whose earnings fluctuate below the auto-enrolment threshold, setting up a personal pension can ensure contributions continue steadily. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, also advises: "If you do need to opt out due to financial pressure, keep a note to check back regularly to re-enrol when possible. Re-enrolment happens automatically every three years, but you don't want to spend that long out of the market."
While legislative solutions like the Pension Schemes Bill, which proposes automatic consolidation, are in the pipeline, taking personal action now is key. By hunting down lost pots and bringing your savings together where it makes financial sense, you can transform your retirement planning from a guessing game into a clear, manageable strategy.
