Lost pension pots could cost savers £27bn

The research, which was co-sponsored by the Association of British Insurers (ABI), found that almost 3mn pots are not currently matched to their owner.

The study carried out by the PPI revealed savers across the UK are in danger of missing out on significant sums of cash as they have lost contact with their pension providers.  

Since 2018, the value of lost pension pots in the UK has risen by 37 per cent from £19.4bn to £26.6bn.   

There has also been a 73 per cent increase in the number of lost pension pots during this time from an estimated 1.6mn to over 2.8mn.

Yvonne Braun, director of policy, long‑term savings and protection at the ABI, said people are missing out on money that can make a real difference to their quality of life in retirement. 

“It’s time to pay your pension some attention and use the resources available to track down any lost pots,” she said. 

“It only takes a short amount of time to check what money you have built up and keep your records up to date.” 

In addition, National Pension Tracing Day, launched by Punter Southall Aspire and supported by the industry’s leading providers is taking place this Sunday (October 30). 

 Not updating your contact details for these pensions when you move to a new house means it is easy for pensions to go astray - Helen Morrissey, Hargreaves Lansdown

The campaign urges consumers to take action on misplaced pensions. 

ABI said the day itself coincides with the clocks going back, so the campaign encourages people to take advantage of the extra hour to start their search and use the pension tracing tools available. 

Alan Morahan of PS Aspire, said: “The findings support our rationale for founding National Pension Tracing Day and show there is still much work to do to reunite people with lost pension savings. 

“The introduction of pension dashboards should assist with that and this research provides a benchmark from which to measure their success.”

Morahan added: “It also supports the work being carried out to reduce the number of small, deferred pots.”

In the meantime, he said, Punter Southall Aspire hopes that pension providers, pension schemes and employers will promote the importance of tracing lost pensions, with the message that doing so is not as difficult as some people might think.”  

The government’s own pension tracing service is designed to help reunite people with their misplaced pensions quickly.

According to a Freedom of Information request made by Hargreaves Lansdown, the service has taken over 232,000 calls between April 2017 and August 2022.

Tracing pensions

PPI and ABI said there are five simple steps people can take to trace their pension. 

These are:

• Retrace career steps;
• Check old papers;
• Check that details are up to date;
• Check for any gaps in your pension history;
• Contact your provider.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said the number of lost pensions is growing at an “alarming rate” and risks undermining retirement planning.

“We are more likely to change jobs several times during our careers and auto-enrolment means you could have a pension for each one,” she said.

 The pandemic is likely to have spurred an acceleration in career moves over the last four years Tom Selby, AJ Bell 

“Not updating your contact details for these pensions when you move to a new house means it is easy for pensions to go astray and you won’t have a full idea of what you have.”

Morrisey said the pandemic has acted as an accelerant to the trend, with more people shifting jobs and we now have an estimated £26.6bn in lost pension money in the system.

“The average amount in lost pensions is just over £9,400 -this may not sound like a lot but over time investment growth can add up to a tidy sum and if you lose track of more than one pension, it can have a major impact on retirement planning decisions,” she said. 

Finding a lost pension could be the difference between struggling to make ends meet or being a bit more comfortable in retirement. 

It might mean individuals can afford to go part-time in the years before retirement or need to stay in work for longer, so it’s vitally important to keep contact details for pensions up to date, she said. 

The report said pension providers spend millions of pounds every year on measures to help identify, track down, verify and reconnect people with their lost pension savings. 

They are also working on and delivering other solutions, including developing pensions dashboards and launching a national engagement campaign.  

Despite action by the industry, problems usually arise because people forget about pots built up in previous jobs, or they change their name or move house without telling their pension provider. 

Studies have shown that only one in 25 people instinctively think to tell their pension provider that they have moved home. 

In contrast, around 89 per cent think to tell their GP or dentist. 

If people are unsure who their pension provider is, they can ask their employer or use the free pension tracing service.

John Upton, policy analyst at the PPI, said: “While the problem of lost pots had been expected to worsen over time, the second iteration of this survey has enabled the problem to be gauged more precisely. 

“There has been significant growth in the value held by these pots, underlining the fact that this problem will continue to grow without intervention.”

Upton said one such intervention is pensions dashboards, which the survey found cautious optimism among providers. 

“Conducting this survey immediately before the launch of dashboards will allow us to evaluate their impact with further iterations of the survey.” 

The average lost pension is still estimated to be worth well over £9,000 – not the sort of money you would normally find down the back of the sofa Tom Selby, AJ Bell

He explained that in recent years, there has been an increase in people moving house and more people changing jobs through the coronavirus pandemic. 

Likewise, Tom Selby, head of retirement policy at AJ Bell, said the success of automatic enrolment in getting millions of people saving something for retirement, many for the first time, “has exacerbated the problem of ‘lost’ pension pots”.

“The combination of people switching jobs regularly – around 11 times over the course of a lifetime according to some estimates – and auto-enrolment is creating a vast and hugely valuable sea of retirement money that has become disconnected from its owners,” Selby said.

“The pandemic is likely to have spurred an acceleration in career moves over the last four years, driving a £7.2bn surge in the estimated value of lost pensions."

Selby explained that the average value of lost pensions has dropped since 2018, in part because we are likely seeing more lower value pots going missing.

“Despite this, the average lost pension is still estimated to be worth well over £9,000 – not the sort of money you would normally find down the back of the sofa.”

Pros and cons of combining your pensions

Ensuring pensions are easy to track and combine is “absolutely crucial” if we are to ensure more people make the most of their hard-earned retirement pot, Selby explained. 

“Most obviously, a single retirement fund is much easier to track and manage than having various pensions with different providers,” he said. 

“You could also benefit from lower costs and charges, increased income flexibility and more investment choice by switching providers.”

Older pension schemes, for example, often charge more than modern pensions, while plenty of workplace schemes do not offer a full range of retirement income options or restrict your investments to the firm’s own in-house funds.

“Before transferring any old pensions, you should check there aren’t any valuable benefits attached which you may lose, or exit charges that will be applied. Your provider should be able to tell you if this is the case.”

Selby said for those that do decide to consolidate with a single provider, assuming these are ‘defined contribution’ pensions – where you build up a pot of money which you can access from age 55 – the process should be relatively simple.

“If you have a defined benefit pension valued at £30,000 or more this is a more complex decision and you will need to take regulated financial advice before transferring,” he said. 

“You’ll just need to choose a provider with whom you want to consolidate your pensions and get the details of the pension or pensions you want to transfer over. 

“Once you’ve given the relevant details to your new provider, they should do all the legwork for you.”

sonia.rach@ft.com

What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know