Auto-enrolment drives surge in misplaced UK pensions | USAEMALL.com

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The total funds stashed in “lost” pensions surged by almost a fifth over the past two years, new research shows, adding to pressure on the government to expedite plans to help people track their retirement funds. 

As much as £31bn of assets are sitting in 3.3mn unclaimed, inactive or lost pensions pots in the UK, according to the Pensions Policy Institute, a research group, up from £26.6bn in 2022 across 2.8mn accounts. The number of lost pots has more than doubled since 2018.

The PPI defines a pension as “lost” when the pension provider who administers it is unable to contact the saver who owns it.

The spike in lost pensions comes after the government pledged to assess retirement adequacy as part of its pensions review later this year. This could lead to more people being brought within the scope of auto-enrolment, the workplace pension policy, and the minimum contribution rate being increased from a current level of 8 per cent

However, this would make more urgent the need to help people keep track of their pots. “The creation of new lost pots will largely be a result of people being enrolled in a pension scheme automatically,” the PPI said in its report. 

“In the absence of any policy interventions to address lost or small pots, an unfortunate side effect of expanding the scope of automatic enrolment would be to exacerbate these problems,” the research group added. 

The research found the average size of a lost pot was £9,470, rising to £13,620 among 55- to 74-year-olds — a group which faces the most acute concerns over the adequacy of their pensions. Many individuals among this group missed out on defined benefit pensions schemes and were not auto-enrolled into pensions early in their careers. 

As a result, retirement adequacy levels for new retirees will start declining from 2024, and continue declining until 2040, according to the PPI.

In July, the government published proposals to help consolidate retirement schemes and end the proliferation of “deferred” or inactive small defined contribution pensions pots.

It is working on a so-called pensions “dashboard” to enable savers to see all of their pots in one place, without having to remember the details of individual pensions. The programme — first announced in 2016 — should help curb lost pots but has been hit by severe delays. 

However, pensions minister Emma Reynolds this week offered her support for the programme and provided more clarity on the rollout of the scheme. 

In a written statement to parliament, she said: “We are committed to the existing published timetable for the connection of pension schemes and providers to the pensions dashboards ecosystem, which is expected to begin in April 2025, as well as the overall connection deadline of October 31 2026.”

Changes set out in 2022 made it possible for pension providers to transfer dormant pension pots to a government-backed scheme where “forgotten assets” are put to use for good causes.   

Organisations that participate in the scheme need to demonstrate that they have taken extensive efforts to trace the original asset owners and reunite them with their money.