My spouse has ten pension pots, how can she kind them out? STEVE WEBB replies

My wife, while amazing at most things isn’t quite on top of things when it comes to finances and in particular pensions and investments.

Due to various contract roles over the years, she has numerous pensions – at least 10 of them – with different providers scattered around and doesn’t have a record of all of them.

Is there a solution for getting on top of this and potentially identifying all the various pots and schemes she’s paid into and then consolidating with her current provider and work-based scheme, as she is now in a permanent role.

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Steve Webb: Losing track of pensions is not that unusual

Steve Webb replies: The challenge that your wife faces is an increasingly common one.

Broadly speaking, any employee aged between 22 and state pension age and earning £10,000 per year or more now has to be ‘automatically enrolled’ into a workplace pension by their employer.

But every time you change job there is a risk that you leave behind a pension pot with your old pension scheme or pension provider and start off a new one with your new employer. Over time, as in your wife’s case, this can result in large numbers of (often small) pension pots that it can be hard to keep track of.

There are two major government initiatives to try to tackle this problem, but I’m afraid neither represents a complete solution.

Pensions dashboards

The first is the launch of ‘Pensions Dashboards’, which will enable you to see all of your pensions, including your state pension, in one place.

Although this has been talked about for many years, huge progress has now been made on getting pension schemes connected. I think there is a fair chance that dashboards – initially one run by the Money and Pensions Service but eventually multiple dashboards offered by different companies – will be available to the public in the next 2-3 years.

The good news for your wife is that all of her pensions should be showing on the dashboard. Even if she has lost paperwork or no longer has contact details for a scheme, she should be reunited with all of her old pensions via the dashboard.

However, simply being able to see all of your pensions in one place is only the beginning. As you say, many people will want to be able to combine their pensions in one place – possibly their current workplace pension, though not necessarily – and the dashboard will not do this for you.

Automatic consolidation of small pots

The second initiative planned by the government is to automatically consolidate the smallest ‘left-behind’ pension pots.

The Pension Schemes Bill, currently going through Parliament, provides the framework for a new mechanism whereby left-behind pots under £1,000 (known as ‘micro’ pots) will in future be automatically moved to one of a small number of centralised ‘consolidator’ schemes.

We do not yet know who these schemes will be, but they are likely to be highly regulated to make sure that people’s small pension pots are moved to somewhere that will provide good value for money.

The idea is that if someone changes job for a second time and leaves behind a second small pot this will be automatically combined with the first small pot in the consolidator scheme, and so on for all subsequent left-behind pots.

Although the process will be limited to pots under £1,000, the legislation allows the government to gradually raise this threshold in future so that progressively larger pots will be automatically combined. This will save individuals the hassle of having to do this for themselves.

Unfortunately, the implementation of this policy is still years away. The legislation envisages that pots will not start moving in this way until around 2030, and is likely to remain limited to micro pots while the new system is bedding in. 

Realistically, we are many years away from an automatic system that does all of this for you, especially if some of your pots are over the £1,000 threshold.

In the meantime, therefore, if your wife does want to consolidate her pension pots, she will have to do this herself.

If they are modern pots created under automatic enrolment then the process should be relatively straightforward, though if she has older pots then there can be complications. For example, some pensions (especially older ones) may have valuable features such as enhanced tax-free cash or guaranteed annuity rates where she would want to think carefully before throwing these away.

Our guide on putting pensions together has more information on some of the issues to consider when looking at whether or not pension consolidation is a good idea.

On the plus side, if your wife does identify a scheme to receive all of her different pots, she might find that this scheme would be more than happy to help with the consolidation process as it is often to their commercial advantage to do so.