The total value of pension pots that are lost is now £26bn. This number will only get higher thanks to Government delays
March 3, 2023 11:46 am(Updated 12:04 pm)
Are you a forgetful person? In the busyness of life, do you occasionally misplace your keys, your phone or wallet? How about £9,470?
Over a lifetime of working and accumulating various pensions here and there, the chance of you letting an old one slip through the cracks may be high. But the loss to you of doing so could be higher than you think. The typical value of a forgotten pension, according to the Pensions Policy Institute, is £9,470, with a total value of lost pots in the UK of £26.6bn. The institute also estimates that the number of lost pensions increased by 73 per cent from 2018 to 2022.
The problem of lost pensions is only going to grow. This is why UK savers need a Pensions Dashboard – a place to log in and see all your pensions in one place, working together, with a running combined total and an educated guess on how much you are likely to have from all of them when you retire. Currently, we receive this information piecemeal from providers on annual statements and so it’s hard to get any idea of how we are doing in the round.
Unfortunately the Government this week put the dashboard proposals on the back burner yet again, citing the technological difficulties of putting it together. This project might be hard and quite a cost to providers, but it shouldn’t be shelved, because the cost to individuals and an ageing society of lost pensions is too high.
Why can’t we just keep track of pensions for ourselves? If you’ve had a reasonably active career, it can be hard even in your forties trying to remember the jobs you did in your twenties. And these days, people are likely to have even more employers over the years. The idea of a “job for life” is archaic, in a recruitment market heavily influenced by LinkedIn. Now job-hopping every two to three years is viewed by many as the primary way to achieve pay rises. The Government reckons 11 jobs in a lifetime is not unusual. But the path to new roles and higher pay may be littered with old pensions. That £9,470 could quickly become £20,000.
Another big change that has fuelled the lost pensions problem is people frequently moving home. In your twenties, you are as likely to have five different addresses as you are five different jobs. In the rush of life, you also might not quite get around to telling all of your old providers about your move.
All of this points to an even bigger lost pensions problem brewing. Lots is done for us on pensions – the fact that you now get them automatically with a new job that pays over the minimum threshold for auto-enrolment, without lifting a finger, is a great example of this.
Passivity is baked into the system. The problem with this is that we suddenly require people to be very active about their pensions a few years before retirement. This is a serious gear shift in engagement that is hard to cope with and unfair. You can’t make it OK for people to not have to think about pensions for their entire working lives and then suddenly, prior to reaching age 55, the age you can first access your pensions, ask them to snap into action and know what to do.
The adequacy of pension pots to generate a decent income for people in retirement is a big problem with wide social implications. If a typical pot at retirement is currently less than £100,000, barely enough to scrape a basic living standard on top of the state pension, that extra £9,470 in lost pensions becomes highly significant.
So while the Pensions Dashboard programme may not be high up on your personal list of Government asks – you might be more animated about the NHS, or education, for instance – the potential loss to us as individuals from this programme not going ahead could be high. £9,470 is almost the equivalent of one year of full, New State Pension. It could be the difference between retiring at 65 or 66.
Aside from the potential financial loss caused to millions by forgotten pensions, another potential benefit squandered through allowing the dashboard programme to fade away would be improved knowledge and engagement with pensions, which in turn could inspire people to save more into them. The Financial Conduct Authority says pension engagement is low. It always has been, but on this front, auto-enrolment arguably hasn’t helped, because it has allowed people to think it’s OK not to ever think about their pensions, as it’s done for them.
Unfortunately though, auto-enrolment does not yet go far enough – and if we want a retirement worth having, we still have to do quite a lot for ourselves, by increasing contributions, for instance, or choosing a fund more appropriate for our circumstances. The Pensions Dashboard could also keep people motivated and on track – important in a future with possibly less state pension to look forward to.
So while there may be other things higher on our Government wish lists, let’s not be complacent on this Pensions Dashboard project, because that lost pension money, while we never saw it in our bank accounts or held it in our hands, is our money, and could make a big difference to us, one day.
Rebecca O’Connor is the director of public affairs at Pension Bee, the online pension provider