Following the publication of the Pension Policy Institute’s study on lost pension pots, Hetty Hughes, ABI Manager, Long Term Savings Policy, reflects on why this means we all need to pay our pension some attention.
My personal financial admin is often a Sunday task that is almost always deprioritised for other mundanities, such as laundry or bathroom cleaning. And I work in pensions.
I am not alone in this procrastination. Recent consumer polling by the Pension Attention campaign found 48% of adults didn’t check their retirement savings in the last 12 months. This financial procrastination, or unawareness, is evidenced by the new lost pots figures published by Pensions Policy Institute (co-sponsored by ABI) last week.
We last asked the PPI for an estimate in the number and value of defined contribution lost pots in 2018, and the figure of the latter (£19.4bn) was shocking then. It’s worse today. Job churn from the pandemic, and an increase in people moving house, means this has increased by 36%, to £26.6bn.
What’s even worse is the increase in the number of lost pots, which is nearly 75% higher than in 2018, at just under 3 million. One statistic from the PPI’s report is particularly striking: lost pots are growing faster than the total number of new pots being generated.
- Who are losing their pots? Primarily those under 55, which accounts for 65% of the total number of pots lost, but over half a million are still lost in the crucial pre-retirement period of 55-65.
- Why are pots being lost? Contact is typically lost because people move home and do not tell their provider they’ve moved. People have moved jobs and home more frequently since 2018, which has predominantly led to this increase. Our research found that only 4% of people instinctively think to contact their pension provider about a change in address; in comparison 66% tell their bank.
- How much are they losing contact with? You would assume that a lost pot would be a smaller one, because surely any materially-sized pot would have been, if not cherished, at least tracked by their owner. But these pots are not insubstantial. The average size pot which is lost amongst the 55–75-year-old range, is £16,004. The average across all ages, is £9,474. Average pot sizes (lost and not lost) are not much more. Indeed, for women the average size of a lost pot is 75% of the size of the average pot. Because of the gender pensions gap, a man’s average lost pot value is greater than that of a woman’s (£10,715 vs £6,441).
The amount of media coverage on personal finances has never been so high, and it's often bad news stories of increasing inflation and interest rates on mortgages. Reconnecting these pots with their owners would have a real impact on their retirement incomes; an extra £446 a year in fact. But it is not just future retirees who will benefit from being reunited. For those over the age of 55 (when pots can be accessed), there is an estimated £13bn worth of lost DC pension pots, which could help those struggling today.
So, what is being done about this issue?
Providers spend millions of pounds every year trying to trace gone away customers and reunite them with their money. FCA-regulated pension providers also have clear duties on actions they need to take to reconnect customers with their money. However, success rates for finding lost customers would be much higher if the industry were able to verify customer data with Government records. This has long been an ask of the industry. International examples, such as Denmark’s Central Personal Register, demonstrate that this really works to reduce the number of gone away customers; the Danes have very few.
93% of people in the UK use online banking. Pensions dashboards will allow people to see a complete picture of their pensions. This would be a silver bullet to the lost pension pots problem if the number of people who log on to them replicates the number of people who use online banking. But this is an overambitious aim if people don’t engage more in their pensions at all. There must be a concerted effort, by both industry and Government, to get people to go to dashboards once they arrive.
In the meantime, or as a complement, campaigns like the ABI and PLSA’s Pension Attention, and National Pension Tracing Day, which encourage people to go and find their pensions, could make a difference. Nudging people to consolidate their smaller pots may also help.
However, you don’t know what you don’t know. If you don’t know that you may have a lost pension pot, then you’re not going to think you need to find it. That is why we should be asking everyone a question: Have you lost contact with £9,500?