The issue of lost pensions in the UK is escalating rapidly. Research reveals that the total value of unclaimed pension pots has surged from £19.4 billion in 2018 to £31.1 billion in 2024. Currently, there are 3.3 million pension pots classified as lost.

This growing problem could be attributed to issues including; individuals neglecting to update pension providers after changing address, the impact of auto-enrolment which has led to the accumulation of multiple small pots, and a widespread lack of awareness and engagement with pension savings.

In light of Pension Tracing Day on 29 October, Jonathan-Watts-Lay, Director, WEALTH at work explains how employees can track down lost pensions and provides guidance on whether to consolidate.

He urges: “Employees should take the time to investigate whether any of the 3.3 million lost pension pots belong to them. Reclaiming even one could significantly enhance their retirement income. See our steps to locate a lost pension.”

Steps to locate a lost pension:

1. Compile a list of previous employers as this can help identify how many pensions you might have. It can be helpful to go back through old documents such as payslips, P45s, P60s and CVs.

2. Contact former employers to find your previous pensions details.

3. Those who are unable to obtain their pension details from a previous employer can try to find them using the Government’s Pension Tracing Service: www.gov.uk/find-pension-contact-details.

4. Once the provider is found, contact them to request current statements and to confirm pension values and details.

Should employees consider consolidating their pensions?

“Once lost pensions are located, employees may find it beneficial to consolidate multiple schemes into one. This approach is particularly relevant to defined contribution (DC) pensions, which are now the dominant type of workplace pension in the private sector. In a DC scheme, you build up a personal ‘pot of money’ that can be used to provide income in retirement, and consolidating these pots can make it easier to manage your savings and improve investment oversight.”

He adds; “While individuals can consider transferring defined benefit (DB) schemes (also known as ‘final salary’ pensions), this is generally not recommended. DB schemes offer valuable benefits, including a guaranteed income for life, which could be lost if transferred. The process is also more complex, and if the transfer value exceeds £30,000, individuals are legally required to seek regulated financial advice, which comes at their own cost.”

What risks are there when consolidating pensions?

Watts-Lay comments; “It is important for employees to check that they won’t lose out on valuable benefits or be charged expensive exit fees if they leave a provider. For example, some might have guaranteed annuity rates, a protected pension age, or enhanced tax-free cash.”

He continues; “Employees also need to ensure that the choice of investment options available are right for them and they should consider how they want to want to access their pension in the future, and whether the provider they want to use gives them the pension income flexibility they are looking for.”

How can someone consolidate and how much does it cost?

Watts-Lay explains; “To consolidate your pensions, individuals should get in touch with the pension provider they intend to transfer to. This could be their current workplace pension scheme or another pension arrangement they have set up privately. They will ask for details including the policy numbers and provider names of all the pensions. This information will be available on paperwork and statements from the existing provider. The pension scheme they have chosen to transfer into will then begin the process of arranging for all their pensions to be transferred into one plan.”

He continues; “The costs of this can vary but bringing pensions together may reduce some charges as some providers charge a lower percentage the more that is invested. Individuals should ensure they check all charges, including fees for any advice taken, setting up the new scheme, platform fees as well as dealing and transactional charges (including those to access funds via drawdown) and investment management fees.”

Some pension consolidations are taking a long time to happen. What is causing the delay?

Watts-Lay explains; “The time it takes to transfer a pension depends on the method different provider’s use. Some still send paperwork through the post, which can be a lot slower than secure electronic methods. Also in November 2021, new measures were put into place to protect pension savers from scams which means that providers have more rigorous processes that flag or block transfers which show signs of a potential scam. To prevent the transfer being flagged, it is important that individuals provide as much information as possible to reassure the existing pension provider that it is a legitimate transfer.”

What can employers do to help?

Watts-Lay explains; “A Pension Consolidation service can form an important part of an employee’s benefits package, particularly for those who have worked for multiple employers and accumulated various pensions over time.”

He adds; “Many forward-thinking employers provide this service alongside engaging financial education to help employees make informed decisions about their future. This involves informing employees about the advantages and disadvantages of pension consolidation. Providing such support demonstrates a commitment to long-term employee wellbeing and financial security.