Nearly £19bn is currently sitting in lost pension pots as employees fail to track multiple work pensions, made much worse by multiple auto enrolment mini pots. Unbelievably, the £19bn is spread over almost three million UK pension pots, which amounts to an average of £6,000 per pot in missing pension savings, per individual affected, according to recent data published by the Pensions Policy Institute (PPI).
Why has this happened?
The PPI says that structural factors, including automatic enrolment, job changes, longer working lives, coupled with a probable future expansion of pension saving, mean that new lost pensions will continue to be created unless there is further intervention by the Government.
The situation has significantly worsened since the introduction of pension auto enrolment, as more employees take up pensions through their employers, but unfortunately many of these individuals do not always keep records of their pension pots if they change jobs frequently and/or move house.
Different age, larger problem
The vast majority of the 3million missing pension pots, amounting to 82% of the total, are held by pension savers aged under 55, according to the Lost Pensions Survey by the PPI. Whilst the average lost is £6,000, the issue is significantly worse for savers near retirement or having just retired, with those in the 55+ age bracket missing on average £10,710.
Younger savers are more likely to accumulate multiple small pots that become difficult to track over time as they change jobs and work far more frequently and can often have more than one concurrent jobs. This can then be compounded by much greater geographic mobility among younger people.
The impact of the changing job market
To Illustrate the impact of a changing work world with fewer people remaining in jobs for long periods of time, only a very small fraction of lost pension pots is held by the over 75s, with this cohort only accounting for a fraction of 1% of all lost pots.
Dr Suzy Morrissey, director of the Pensions Policy Institute, said: ‘Lost pension pots remain a significant issue for savers, providers, and policymakers. From a saver perspective, a lost pension can reduce retirement income, hinder retirement planning, and limit members’ ability to make informed decisions about their savings. These risks are especially important for those approaching retirement, including Generation X and younger Baby Boomers, who may have limited time to improve retirement outcomes.’
How will HMRC deal with the issue?
How HMRC will deal with the issue of a lost pension when the 40% Inheritance Tax on pension pots comes into force from 6 April 2027, is far from obvious. It is already clear that lost pots are not likely to be a major immediate concern issue for the taxman, but it will be a major problem for those currently under 75.
The scale of the lost pension problem may be partly addressed when the new pensions dashboard is released, planned to be introduced for the 2027-28 financial year. The idea is that the dashboard will give savers a unified view of all their pensions in a single place, allowing them to identify their full entitlements.
The government also plans to create a small-pot consolidator system designed to automatically bring together eligible small, dormant pots. Whilst these reforms could help prevent the problem from continuing to grow, rather than simply addressing it after the fact, HMG have not given a timescale for this badly needed proposed system.
What have MaPS and other experts said
Oliver Morley, CEO of the Money and Pensions Service (MaPS) recently said: ‘The Pensions Dashboard being developed by MaPS will help tackle this problem. As well as a single overview of pensions in one place, a dashboard will show pensions that people may have lost touch with.’
The Pensions Policy Institute have weighed in and have cautioned ‘these reforms will take time to deliver their full impact’ and stressed the importance of ‘continued action to improve data quality, support tracing, and reduce the creation of new lost pension pots’.
Emma Furlonger, managing director for workplace pensions at Standard Life, said: ‘It’s deeply concerning that so much money put aside for retirement can become disconnected from the people it belongs to. With around 2.5m lost pots belonging to people under 55, this is clearly a challenge that extends well beyond those approaching retirement, and the answer can’t simply be to expect everyone to become an expert at tracking down pensions accumulated over decades of working life.’
Lack of urgency by the government
HMRC and the government in an attempt to deflect criticism of their rather feeble efforts to address the issue thusfar, belatedly introduce a National Pensions Tracing campaign on 25th October, which they say is targeted at the millions of people affected by pension pots that have become disconnected from their owners.
A new website has been created that has a useful checklist tool to help savers reconnect with their lost pots. I’m also pleased to say that this belated attempt to at least partly address the problem, is supported by all of the leading pension providers. The link is: https://nationalpensiontracingday.co.uk/
Accountant’s view
I am somewhat sceptical as to the promised implementation date for the pensions dashboard, given that this was first proposed in 2016 and is still not up and running. Having said that the above links is a very good start and if you suspect that you may have a small pot that you’ve forgotten about, give it a try.
Finally, my Blog next week will be a forensic examination of the small print of John Healey’s first budget.
Have you lost your pension?
Nearly £19bn is currently sitting in lost pension pots as employees fail to track multiple work pensions, made much worse by multiple auto enrolment mini pots. Unbelievably, the £19bn is spread over almost three million UK pension pots, which amounts to an average of £6,000 per pot in missing pension savings, per individual affected, according to recent data published by the Pensions Policy Institute (PPI).
Why has this happened?
The PPI says that structural factors, including automatic enrolment, job changes, longer working lives, coupled with a probable future expansion of pension saving, mean that new lost pensions will continue to be created unless there is further intervention by the Government.
The situation has significantly worsened since the introduction of pension auto enrolment, as more employees take up pensions through their employers, but unfortunately many of these individuals do not always keep records of their pension pots if they change jobs frequently and/or move house.
Different age, larger problem
The vast majority of the 3million missing pension pots, amounting to 82% of the total, are held by pension savers aged under 55, according to the Lost Pensions Survey by the PPI. Whilst the average lost is £6,000, the issue is significantly worse for savers near retirement or having just retired, with those in the 55+ age bracket missing on average £10,710.
Younger savers are more likely to accumulate multiple small pots that become difficult to track over time as they change jobs and work far more frequently and can often have more than one concurrent jobs. This can then be compounded by much greater geographic mobility among younger people.
The impact of the changing job market
To Illustrate the impact of a changing work world with fewer people remaining in jobs for long periods of time, only a very small fraction of lost pension pots is held by the over 75s, with this cohort only accounting for a fraction of 1% of all lost pots.
Dr Suzy Morrissey, director of the Pensions Policy Institute, said: ‘Lost pension pots remain a significant issue for savers, providers, and policymakers. From a saver perspective, a lost pension can reduce retirement income, hinder retirement planning, and limit members’ ability to make informed decisions about their savings. These risks are especially important for those approaching retirement, including Generation X and younger Baby Boomers, who may have limited time to improve retirement outcomes.’
How will HMRC deal with the issue?
How HMRC will deal with the issue of a lost pension when the 40% Inheritance Tax on pension pots comes into force from 6 April 2027, is far from obvious. It is already clear that lost pots are not likely to be a major immediate concern issue for the taxman, but it will be a major problem for those currently under 75.
The scale of the lost pension problem may be partly addressed when the new pensions dashboard is released, planned to be introduced for the 2027-28 financial year. The idea is that the dashboard will give savers a unified view of all their pensions in a single place, allowing them to identify their full entitlements.
The government also plans to create a small-pot consolidator system designed to automatically bring together eligible small, dormant pots. Whilst these reforms could help prevent the problem from continuing to grow, rather than simply addressing it after the fact, HMG have not given a timescale for this badly needed proposed system.
What have MaPS and other experts said
Oliver Morley, CEO of the Money and Pensions Service (MaPS) recently said: ‘The Pensions Dashboard being developed by MaPS will help tackle this problem. As well as a single overview of pensions in one place, a dashboard will show pensions that people may have lost touch with.’
The Pensions Policy Institute have weighed in and have cautioned ‘these reforms will take time to deliver their full impact’ and stressed the importance of ‘continued action to improve data quality, support tracing, and reduce the creation of new lost pension pots’.
Emma Furlonger, managing director for workplace pensions at Standard Life, said: ‘It’s deeply concerning that so much money put aside for retirement can become disconnected from the people it belongs to. With around 2.5m lost pots belonging to people under 55, this is clearly a challenge that extends well beyond those approaching retirement, and the answer can’t simply be to expect everyone to become an expert at tracking down pensions accumulated over decades of working life.’
Lack of urgency by the government
HMRC and the government in an attempt to deflect criticism of their rather feeble efforts to address the issue thusfar, belatedly introduce a National Pensions Tracing campaign on 25th October, which they say is targeted at the millions of people affected by pension pots that have become disconnected from their owners.
A new website has been created that has a useful checklist tool to help savers reconnect with their lost pots. I’m also pleased to say that this belated attempt to at least partly address the problem, is supported by all of the leading pension providers. The link is: https://nationalpensiontracingday.co.uk/
Accountant’s view
I am somewhat sceptical as to the promised implementation date for the pensions dashboard, given that this was first proposed in 2016 and is still not up and running. Having said that the above links is a very good start and if you suspect that you may have a small pot that you’ve forgotten about, give it a try.
Finally, my Blog next week will be a forensic examination of the small print of John Healey’s first budget.
Latest Post
Tax News Categories
MJ & Co support businesses at every stage
We provide expert advice for all size businesses.
Have questions or need expert advice? Our team at MJ & Co Accountants is ready to assist.
Whether it’s a query about our services, a specific accounting challenge, or a request for a consultation, we’re here to offer personalised support.