UK pension reform promises £1,000 savings boost for retirees
The UK Government has unveiled significant plans to consolidate small pension pots, potentially boosting retirement savings by £1,000 for the average worker.
Announced on 24 April 2025, the initiative targets the 13 million small pension pots worth £1,000 or less, which are growing by around one million annually.
This reform, part of the Pension Schemes Bill, aims to simplify pension management and reduce administrative costs for both savers and the pensions industry.
Under the proposed changes, small pension pots will be automatically merged into a single, high-performing pension scheme managed by authorised workplace providers.
The issue arises as people are auto enrolled into pensions when they start a new job. But when people subsequently move job, they leave the old pot behind and start a new one. Anyone who moves job frequently can end up with several tiny, inefficient pots.
The reform is expected to save the pensions industry £225 million annually in administrative costs, which currently burden businesses and erode savers' funds.
Pensions Minister Torsten Bell highlighted the issue, commenting, "It’s great news that more people are saving for their retirement. But I want to make pension saving as simple and rewarding as possible.
“There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year.
“We will automatically bring together people’s small pots into one high-performing pension, reducing costs as well as hassle for savers. In time this could boost the pension of an average earner by around £1,000 as part of our Plan for Change to put more money in people’s pockets.”
The consolidation could streamline individual retirement planning, making it easier for savers to monitor their pensions and reduce unbalanced fees often associated with small pots.
While the Government estimates a £1,000 boost for the average earner, savers can opt out if they prefer to keep their pots separate.
What you can do now to better manage your pensions
Savers don’t need to wait for the government’s scheme to take better control of their pensions. But pensions are easily misplaced, especially when smaller. This can be compounded by moving house and not updating your address with the provider.
Here are some steps to consolidate and boost your retirement savings right away.
Find lost pensions: Use the Government’s free pension tracing service to locate forgotten pension pots. You’ll need details such as former employers’ names or pension provider information. Alternatively, contact your old employers or pension providers directly to track down missing funds.
Assess consolidation: Consolidating pensions into a single plan, such as a self-invested personal pension (SIPP), can reduce fees and simplify management. However, check for exit fees or valuable benefits, such as final salary, before transferring.
Seek professional advice: For complex pensions or significant savings, consult a financial adviser to ensure consolidation aligns with your retirement goals.
Taking steps now can help maximise your pension savings, reduce administrative hassle and prepare for a more secure retirement. But a financial planner can help you to ensure the right plan is put in place to ensure the best possible outcome.