Small pension pots: what should you do with yours?

The small pension pot problem 

Auto-enrolment, where workers are signed up to workplace pensions automatically, has been a huge success, getting millions more workers saving for retirement since it was introduced in 2012.

However, one unintended consequence is that workers who change jobs regularly or only stay in roles for a short time are now building up collections of small pensions.

A growing amount of forgotten pensions

In 2024, there were an estimated 23 million defined contribution pensions, worth £10,000 or less, that savers were no longer contributing to, according to the Institute for Fiscal Studies (IFS).  

These small pots can be problematic for savers. 

It’s harder to keep track of your retirement savings when they are scattered between many providers.

They can also be easy to ‘lose’ if you move house and don’t update each pension provider with every change of address.

Why is it important to trace lost small pension pots?

You can never have too many contributions to your pension pot (well you can, but the pension limits are pretty high – most people will never exceed them), so it’s really important to track down old and unclaimed pensions and consolidate them.

And in the unlikely event that you have exceeded the savings limits, or may be about to, you’ll want to know about this in good time so you can avoid any tax penalty.

Why your annual statements matter

Most pension providers and former employers are obliged to send you a yearly statement, setting out an estimate of the income you might expect from the scheme on retirement.

If you’re no longer receiving these statements, perhaps because you’ve changed your address, opted out of the start earnings-related scheme (SERPs) in the past, or have changed jobs, then it’s time to start tracing, because losing a pension can be costly.

What are your options for small pension pots? 

You don’t have to do anything with small pensions that you don’t contribute to any more. You can just leave them where they are. 

However, if managing multiple pots feels like a hassle, or you’re worried about losing track, there are alternative options to consider. 

One popular solution is to consolidate your small pensions into a new personal pension, such as a self-invested personal pension (SIPP). 

By combining scattered pensions into one pot, it will be easier to see how much money you have saved for retirement and monitor investment performance.  

You don’t need to close any accounts yourself and your new pension provider will carry out the transfer for you.

Alternatively, if you’re 55 or over (rising to 57 in 2028), you could cash in small pensions instead. 

What’s the right option for me? 

Each option has its pros and cons – the right option for you though, will depend on both the stage of life you’re at as well as your personal preferences. 

Pension consolidation 

In addition to making your retirement savings easier to manage, combining your pensions may also save you money, if your new pension has lower charges. 

Many modern SIPPs have competitive fees and can be cheaper than older workplace pensions.

This means you’ll get to keep more of your investment returns, giving your pot a significant boost over time. 

You might also find that a new pension will give you a wider choice of investments and access to more retirement income options, such as flexi-access drawdown. 

To see how your combined pension could grow over time, you can use our pension calculator.

Learn more: How to find the best drawdown pension provider

However, before you transfer any pension, it’s important to check whether you’ll lose any valuable benefits, such as guaranteed annuity rates. 

You should also find out whether any exit fees apply.

Exit fees have been scrapped for pensions taken out on or after 31 March 2017, but may still apply on older pensions (although they are capped at 1% if you’re 55 or over). 

Cashing in small pensions 

If you’ve turned 55 (57 from 2028), another option is to cash in your pension.

You can normally only cash them in earlier if you have serious health problems.  

This could be a helpful way of finding money for certain mid-life expenses – for example, paying off a mortgage or helping family members.  

But there’s a lot to consider first. 

The first 25% of the withdrawal will be paid tax-free, and the remainder will be taxed as income. 

Usually, when you make a taxable withdrawal from a pension, you’ll also trigger the money purchase annual allowance (MPAA).

This sees the maximum amount you can pay into pensions fall from 100% of your earnings up to £60,000, down to just £10,000 a year. 

This may be a problem if you’re still earning and want to boost your pot in the run-up to retirement. 

However, there are different rules for small pensions – defined as being worth less than £10,000.

You can cash in up to three personal pensions without triggering the MPAA, or as many occupational pots as you like, so long as each individual one doesn’t exceed £10,000. 

This flexibility aside, it’s also important to consider what you’ll spend the money on and how much retirement savings you have overall.

Taking too much out of your pension savings too soon could have a detrimental impact on your future financial security. 

Leaving your small pension pots where they are 

If you leave your money where it is, it will remain invested until you take further action.

As long as you know where your money is and keep your pension provider updated of any changes of address, you won’t lose your pot. 

This can make your retirement planning feel somewhat fragmented.

You’ll be dealing with many pension providers and need to stay on top of your admin to ensure they don’t go missing. 

It’s unlikely to be the most cost-effective way to save for retirement, either, as older workplace pensions can be expensive. 

However, if you’re likely to cash in a pension before you retire, the ‘small pot rules’ which let you cash in pensions without reducing your pension allowance, might mean it makes sense to keep one or two. 

Tracking down lost pensions 

As you’re thinking about small pensions, you might realise that you’ve lost a pot or two along the way. 

According to the Association of British Insurers, there are now an estimated 3.3 million lost pensions in the UK, worth an average of £9,470. 

There are several ways to reunite yourself with lost pensions.  

If you can dig out old paperwork, you should be able to contact pension providers and provide them with new contact details, or you can contact former employers. 

If that doesn’t work, the government also has a free pension tracing service. 

Get expert small pension pot advice 

Staying on top of small pension pots can be tiresome, and working out the right course of action isn’t always straightforward. 

For this reason, it usually makes sense to talk to a qualified financial adviser before you take any action. 

They can help you work out where you stand and recommend the right course of action for you, taking into account your goals as well as practicalities, such as tax and your future retirement income needs.