More than one in four adults (26 per cent) now have at least one pension pot of less than £5,000, as the problem of small pots across the pensions industry continues to proliferate.
The latest research by Aegon shows the extent of the problem, with almost six out of 10 pension savers (58 per cent) had never consolidated their different pension savings. This problem was further compounded by the problem of people losing track of pension savings: 15 per cent of those surveyed said they did not know if they had pension pots from previous employers.
This research comes ahead of National Pension Tracing Day (October 31) an industry-wide initiative launched by Punter Southall Aspire, designed to encourage people to track down lost pensions, and get a more fuller understanding of their retirement savings.
Auto-enrolment and the fluidity of the job market has led to an increase in the number of small pension pots. Previous research from the DWP looked at the prevalence of small pots under £2,000 and £10,000. However, Aegon says recent evidence shows a proliferation of much smaller pots under £500.
One in four (39 per cent) adults said they had moved some or all their pensions together, while one in six (58 per cent said they have never consolidated a pension pot. The most common reasons stopping people from consolidating were not wanting ‘all eggs in one basket’ and not knowing the benefits.
For those who haven’t consolidated a pension pot, 36 per cent said they would be interested in bringing their pension savings together.
One of the ways currently being explored by the government to facilitate this is enabling an automated solution for low-cost transfers and consolidation for the auto-enrolment mass market. Aegon’s research found that a third (34 per cent) of adults would likely use an automated consolidation solution to for a pension pot under £5,000.
Aegon head of pensions Kate Smith says: “Having multiple pensions can make it difficult for people to keep track of their savings and provides challenges when understanding the full value of their retirement savings.
“Bringing these pots together is the simplest way to keep track of pension savings, but Aegon’s research shows well over half of adults have never done this. This isn’t surprising given the low level of pension engagement and understanding in this area.
“Other benefits of consolidating small pension pots include the potential to receive lower charges and access to helpful retirement planning tools which many modern schemes now provide.
“The government’s small pot working group is looking into solutions to address the issues associated with the rise in small pension pots. This includes how to implement some form of automated consolidation which Aegon’s research shows is well supported.
“The inertia principle of auto-enrolment has been very successful in helping increase pension savings and this principle could be harnessed in automated solution to help tackle the small pot issue as well.
“Together with the pension dashboards programme, these solutions should offer savers a much clearer picture of their retirement savings and could be a major step towards improving pension engagement.”
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