Pension Bee is right to be researching the impact of changing employment practice on the economics of running a DC pension. Even before the pandemic , the DWP estimated that without radical intervention we would see 50m abandoned pension pots by 2050.
Pension Bee’s research shows Coronavirus’ impact on the UK labour market will cause a 32% increase in the number of dormant pension pots in 2020
Why pots will proliferate
According to PensionBee, coronavirus will increase the number of dormant pensions left behind by savers from an estimated 16.3 million in 2019 to over 21.5 million in 2020. Defined contribution pensions, which are received by employees under Auto-Enrolment, are the fastest growing type of dormant pension, with an expected increase of 48%, from 10.2 million dormant pots in 2019 to 15.1 million in 2020.
Coronavirus is forecast to increase the unemployment rate from around 4% to 9% according to the Bank of England, and combined with regular job switching and sector-driven career changes as the economy undergoes an unprecedented transformation, it is likely that many more savers will inadvertently abandon their pension pots unless they take action to consolidate.
What you can do about it
Pension Bee recorded a 24% year on year increase in first-time pension transfers for the month of April, indicating many consumers are using their time during lockdown to sort out their finances and consolidate old pension pots. In a recent call to action from AgeWage, over 400 people volunteered to test a consolidation service in the FCA Sandbox
Pension consolidation can help consumers get a more accurate picture of their total savings and any shortfall they need to make up through extra contributions. In addition, pension consolidation can help reduce the total fees a consumer pays, with a 1% fee reduction potentially helping a saver to generate a 40% bigger pension in the long-term.
As the UK economy transforms in the wake of COVID-19, changes to the labour market will be inevitable. While the reality is that individuals can’t control the labour market, one thing that is within their control is their pension. It might not be the first thing that people think about when leaving or changing jobs, but it should be up there on the list of priorities.
As today’s research shows, the likelihood of people losing or abandoning their pension pots when they leave jobs is even greater. It’s important to find out where your pension is and consider if consolidating your pots is the right decision for you.
Why pension schemes should work together
Pot proliferation is not just bad for savers, it’s bad for the organisations who run those savings. Each pension pot has a cost to create, maintain and pay-out. It makes no more sense for pension providers to have 50m abandoned pots than it does private individuals.
It’s good to see organisations like Origo speeding up the way that pension scheme transfer your pot from one place to another, but there is still a lot to do.
Yesterday I was pleased to see a new initiative being launched, this time by the Idea Group, who have previously helped automate the antiquated back office messaging systems of fund managers. They call the initiative ViaNova Transfer
Just as we need people to get consolidating, we need the pension industry to get its act together and build on the good work of Origo. It’s clear that we cannot wait for the dashboard, we need to get on with doing this ourselves.
Organisations like Pension Bee, AgeWage, Origo and Via Nova are looking to the future when many of us will have plenty of time to think about pensions.
Call to test
If you would like to join the AgeWage test group and work with us to consolidate your pensions , you can still do so by mailing firstname.lastname@example.org. You will be testing in a controlled environment under the auspices of the FCA innovation unit and within the FCA’s sandbox.