Many people aren’t aware that small pension pots could be eroding their savings more than they realise. A recent report from the Institute for Fiscal Studies (IFS) highlighted that millions of small pension pots are at risk of being lost or depleted by excessive charges. As auto-enrolment makes it easier to accumulate multiple pension pots, workers changing jobs frequently can leave them scattered and neglected.
According to the IFS, over 12 million pension pots in the UK are worth less than £1,000, with charges significantly eating into their value. While pension pots set up after auto-enrolment have capped fees, many older pensions can carry higher charges, some exceeding 1%. Even a small difference in fees can cost savers thousands over time, reducing their retirement savings.
Women and lower earners are particularly at risk. Career breaks and part-time work can lead to smaller contributions, leaving many with insufficient pension pots for their retirement.
To combat this, the IFS recommends consolidating small pots and automatically merging them into an existing pension to reduce fees and simplify management. While pensions dashboards will eventually allow savers to track their pots, it’s clear that proactive management of these small pensions is crucial.
For those with multiple small pots, it’s a good idea to track them down, understand the fees, and consider consolidating them into one. Many providers offer pension tracing services, and consolidating can save money in the long run by reducing management fees and improving investment options.
If you’re managing small pots, take the time to review their charges, track down old pensions, and consolidate where it makes sense. This simple action could lead to significant savings for your retirement.
For help and guidance, contact The Wealth Coach