Pensions experts have questioned the appropriateness and practicality of government plans to expand its dormant assets scheme to include pensions and insurance assets.
The programme currently allows the government to seize assets from accounts it considers to be dormant – in effect untouched for 15 years – and then channel the money towards good causes.
At present, only assets from the banking sector can be transferred into the scheme, but the government has said there is “significant potential” to expand it to a wider range of areas – including pensions and insurance assets.
For an account to be considered dormant, it must have been open throughout a 15-year period but with no transactions having taken place during that time.
However, NOW:Pensions head of policy Adrian Boulding said 15 years was not an “appropriate test for pension savings”, and that an age-linked threshold would be better.
“Customers expect our trustees to look after their money until retirement and, while consolidation and greater customer engagement are to be encouraged, some savers will simply leave their pension pot untouched until retirement, which could be a 50- year gap once auto-enrolment is extended to 18-year-olds,” he warned.
“A better test for pension assets would be age 70. Schemes make strenuous efforts to re-contact members around State Pension Age, and many members are also going back over their old employment history too as they reach retirement,” he explained.
“But where schemes do have people over age 70 they have been unable to contact regarding retirement decisions, then that would be a more appropriate time to declare those assets ‘unclaimed’ and move them into the pool of unclaimed savings assets that is being used for good causes.”
Aegon head of pensions Kate Smith said that while the principle “appears to be sound”, pensions were invested in fluctuating investments, meaning, unlike cash, the value would change.
“It’s common for people to save in a pension and then not touch it for many years until they come to retirement, or even into later life,” she said. “It is therefore difficult to set an arbitrary term of, say, 15 years as a meaningful way of describing pension assets as dormant.
“The reality is pension providers already make considerable effort to reunite individuals with their pensions. The introduction of pension dashboards in 2019, will also help individuals find long-lost pensions. This should reduce the number of dormant pension pots and the government should therefore wait before legislating.”
Under the proposals, Smith added, schemes would also face practical issues: “The current dormant asset scheme states there should be no customer detriment and individuals are able to reclaim any transferred assets in perpetuity,” she said.
“The scheme would need to ensure it held enough assets for individuals to reclaim their pension, perhaps with solvency standards similar to those for PRA-regulated firms. Alternatively, the original pension provider may have to act as some sort of ‘guarantor’ covering the additional cost. The government should be consulting widely with the pension industry to devise a workable solution.”
£550m ‘untapped’
According to the government, more than £1bn of dormant assets have been identified and transferred into the scheme. The Independent Dormant Assets Commission has meanwhile estimated there is some £550m in untapped ‘dormant’ assets in the pensions and insurance sector.
Participation in the scheme is voluntary and the government has said that, before any assets are seized, a firm’s first priority should be to trace and reunite customers with their assets. It also said customers would be able to reclaim the amount that would have been due to them had a transfer into the scheme not happened.
Finally, it acknowledged there were “challenges” around the inclusion of non-cash assets and therefore said it would encourage firms to focus on cash assets.
The government said it would announce “senior industry champions” to lead further work, representing the banking, insurance and pensions, investment and wealth management, and securities sectors.
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