The curse of pot proliferation
The Observer ran a good piece on the £20bn the PPI estimate is lost pension money. The ABI put this figure at £19.4bn but with these macro stats, both estimates are close enough to give us a size of the problem.
The problem’s often put down to us moving jobs. The average person does move jobs 11 times but research done by the NAPF last decade suggested that we are not that much more job mobile than we ever were, the problem is that the pension pots we build up from short service, stay with us. It wasn’t that long ago that if you left employment within 5 years of joining a scheme you just got your contributions back, nowadays, you “vest” your and your employer’s contribution rights from day one of being enrolled.
What’s more, if you are 22, you’re in – unless you choose to be out. This means that we are all accumulating pension pots a lot more often. The DWP estimate that by 2050 there may be 50m abandoned pots. That’s £650bn of assets (Assuming an average pot size in line with the ABI’s estimate of £13,000).
So for slightly different reasons than commonly supposed, the problem of “pot proliferation” is every bit as bad as the Observer makes out.
Finding these pensions should not be left to the Pensions Dashboard
One of the unintended consequences of this excitement about the pensions dashboard is likely to be inertia among pension providers about what they call “gone-aways”. Gone Away is the mark that used to come on the letters returned by GPO – alerting an insurer that they’d lost touch with their customer.
In these days of junk mail, not many of these letters now find their way back to their point of origination. It is increasingly hard for pension providers to know how many letters are received (let alone opened). Letters are increasingly becoming unfit for purpose.
The idea of the dashboard is that it will magically be able to trace gone-aways. But this will only happen if we can digitally link a member or policyholder to their record. This means holding an email account , or a social media link or a mobile phone number. Because weirdly, we move our digital links less often than we move house or jobs.
The problem is that though nearly every pre-retired adult in the country has a digital link, only a tiny proportion of policyholders and members are contactable by such links.
Even occupational pension schemes face this problem with the vast majority of members being “deferred”, the jargon used to describe someone who has pension rights but who has left the company.
The Pensions Dashboard Pension Finder Service has no innate advantage over the pension tracing services available today. It will be dependent on people remembering where they have worked and/or the names of the insurance companies that they took policies out with, independently of work.
So we are kidding ourselves that the pensions dashboard will solve the problem of gone-aways, it will – at best – increase awareness of the problem among people struggling to put together their fragmented pension entitlement.
What should be done?
This really is a problem waiting for a technology solution. We all have digital footprints, if we search google hard enough we will find ourselves lurking somewhere. This is how pension tracing works, most people have a linked in or facebook or instagram account, most people have an email and most people can be traced, if a pension scheme or insurer can invest in finding them.
But there is little incentive for insurers to invest heavily in finding people. Putting people in touch with their pots will typically result in a claim – the money leaving. This is not good business. Occupational pension schemes that don’t run for profit do not have budgets for tracking down deferreds.
Mandating providers to deliver information about members is unlikely to happen before 2024 at the earliest, but how can providers identify their gone-aways? Without having had a digital conversation with them, neither the gone-away or the pension provider will know who’s who.
What should be done, and this should be done right now, is for Government agencies to intervene and start sharing data.
The people who know where we live are social security, HMRC, the council tax collectors, the electoral register and the DVLA. There may be others that I haven’t thought of.
If we are serious about finding these pension pots then we should be giving licence to these agencies to share our contact details with pension providers trying to find us. I realise that this will run into all kinds of GDPR issues , but it really doesn’t make sense for the taxman to know who we are but the people collecting the tax-relief not to.
When to start?
I am worried that we wait till we have worked out how to do the dashboard before we start a national campaign to find our pensions.
So much more could be done right now.
I hope that those in Government who read this blog will pick up on this and start knocking heads together. We live in an age of real-time-information but we are not yet sharing much RTI for the public good.
We could start with a voluntary system which people signed up to which allowed our digital contacts to be shared with providers where we gave consent and we could do this relatively quickly.
Perhaps this is one for someone to pick up and run with as a campaign. If you’d like to get involved – mail email@example.com
The time start is now.