October 31st marks the first National Pension Tracing Day. Established by financial consultant Punter Southall Aspire, the national awareness day aims to promote the importance of tracing lost pension pots. How much of a difference can this make to people’s retirement?

According to a paper by the Pensions Policy Institute, ‘Lost pensions: what’s the scale and impact?’, there could be as many as 1.6m lost pension pots, with a potential aggregate value of around 19.4bn. If unclaimed, these lost pension pots have the potential to reduce individuals’ standard of living in retirement. 

Every quarter Punter Southall Aspire run different campaigns related to pensions and retirement to help people over the age of 50 understand everything they need to know about pensions as they go into the final stages of working. Following a campaign on the ‘aspire to retire’ proposition, National Pension Tracing Day was developed with the help of pension providers such as Scottish Widows, Aegon, Standard Life and Legal & General. 

The PPI’s paper said it is estimated that just under two thirds of UK adults have multiple pensions. Among those with multiple pensions, 21% (more than 6.6m people) are aware of having at least one lost pension pot. 

“One of our big things that we’re trying to say in this campaign is don’t assume that you haven’t got a pension pot just because you haven’t got paper work relating to it,” said Alan Morahan, managing director of employee benefit consulting at Punter Southall Aspire.

The campaign has utilised October 31st as the day the clocks go back, encouraging people to use the extra hour to trace lost pensions.

Morahan describes lost or forgotten pension pots as when there is a disconnect between the company looking after the money and the individual who’s money it is. He also identifies GDPR as one thing that makes tracing lost pensions harder: “GDPR is very necessary and generally good, but it does create barriers. Now organisations are finding it even harder to trace people because agencies are not naturally sharing information with each other.”

According to the Association of British Insurers, only one in 25 instinctively think about telling their pension provider about their new address. “People move house 10 or 11 times during their life and if they don’t keep pension companies informed of their change of address then they become disconnected with them. Pension companies are often sending out statements, year in year out, to an old address and they have no way of getting reconnected to those people,” said Morahan.

One group that is suspected to be significantly affected by this is women aged over 50. According to a study at the end of 2018 conducted by the Chartered Institute of Insurance, by the time a woman is aged 65 to 69, her average pension wealth is £35,700, roughly a fifth of that of a man her age. 

“There’s an additional disconnection that often goes on which is of course the change of name through marriage. So not only have you got change of address, change of jobs, out of the work place for considerable periods of time perhaps, you’ve also got that change of name aspect which obviously makes it harder,” he said.

It is hoped that the Pensions Dashboard will help to reduce the prevalence of lost pensions in the future. Once consumers have proved their identity, it will bring together information about all of their pension pots in one place and enable those who have already lost track of pots to find them. Improvement in the effectiveness of re-engagement processes will also be key to improving outcomes.

Morahan says this could also depend on the connectivity the Dashboard is able to achieve with pension providers and more significantly, the occupational trust-based pension schemes: “Trying to get those connected through technology is going to be difficult, but it’s hard to imagine that the Dashboard is not going to assist in this area. It just must and if it doesn’t it would have brutally failed.”

Although National Pension Tracing Day is a great tool for awareness, and finding lost pensions is said to help with engagement and a happier retirement, it may not be the answer to all the pensions industry's problems. 

“The average pension pot that is lost or forgotten is about £13,000. Now that’s a nice sum of money, but for many people that’s not going to hugely change their position into retirement,” Morahan said. “The reason I say that is not to diminish the importance of it, but we shouldn’t see this as the golden bullet that puts things right in terms of member outcomes into retirement. What really matters is people building decent pension pots that are much higher than an average of £13,000.”