Don’t wait for ‘pot for life’ pension reforms

With recent news that most young people support the potential pension “pot for life” proposals, interactive investor research reveals the scale of the multiple pension pots young people are building up.

• Younger workers already have significantly more pension pots than older workers
• Multiple pension pots -1 in 5 young people aged 18-34 already have 5 or more pension pots
• In contrast, just 1 in 20 of over 55s have 5 or more pension pots, while 1 in 10, 35–54-year-olds have 5 or more pension pots
• 36% of 18–34-year-olds have 3 or more pension pots, while a further 9% don’t know how many pension pots they have
• 18-34 year olds have 3 pension pots on average, compared to 2 for those aged over 55 years old
• Proliferation of pension pots is storing up a potential admin headache for future generations when it comes to retirement planning.

Source: Poll carried out by Opinion July 2023 as part of Show Me My Money pension research, based on nationally representative sample of 2,000 adults.

Younger workers already have significantly more pension pots than older workers. They are more likely to pay into defined contribution pensions and the current rules mean workers open a new pension pot each time they change employer. This proliferation of pension pots is storing up a potential admin headache for future generations when it comes to retirement planning.

With multiple pension pots a huge potential issue, it’s welcome news that the government are considering “pot for life” pension reforms to stem the flow of pension pots. But pension savers don’t have to wait for “pot for life” pension reforms to take control of their pension wealth and start combining their pension wealth.

Interactive customer data shows that thousands of interactive investor customers have already taken action and transferred their pension pot.

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Alice Guy, Head of Pensions and Savings, interactive investor says: “The worrying findings reveal that one in five 18–34-year-olds already have five or more pension pots, building up an admin nightmare for the future. The changing nature of the workplace means that employees regularly switch jobs, and the messy current system means they are forced to start a new pension pot each time, collecting multiple pension pots as they move through their working life.

“With final salary pensions dwindling in the private sector, the issue of multiple pension pots seriously impacts on younger generations who often move jobs more and have less access to final salary pensions than older workers. The responsibility is increasingly on the individual to ensure they have a big enough pot to last them throughout retirement and having multiple pension pots makes that planning considerably harder.

“And, having multiple small pension pots can have real-life consequences, leading to pension savers cashing in their whole pension pot, rather than withdrawing a sustainable pension income. Recent FCA retirement income data shows that 85% of pension pots worth less than £10,000 were completely withdrawn as cash, compared to 17% of those worth £50,000 to £100,000 saved and 5% of those worth between £100,000 to £250,000.

“In the long run, the government is exploring plans to give workers one pension “pot for life” which they continue paying into when they switch employers. But these plans could take years to come to fruition, with many practical details to iron out.

“For individual pension savers, there’s no need to wait for pension reforms. Instead, you can take action now by looking for and combining old workplace pensions. Bringing your pensions together makes it much easier to make retirement decisions as you can see all your pension wealth in one place rather than scattered across multiple providers.

“With the onus increasingly on individuals to provide for their own retirement, taking control of your pension and combining your pension pots helps you see if you’re on track for the retirement you want. It also makes it easier to manage your pension wealth and keep an eye on your pension providers' fees and investment performance. If you’re thinking of transferring your pension, then check first to make sure you won’t lose out on any valuable benefits.”