“Frozen Pension” pots and “pension unlocking” are receiving attention recently as both the Government and the pensions industry consider ways to bring together those small pots of pensions savings that many people have from former jobs. Pensions Week reports that there are nearly £20 billion of such inactive pensions in the UK –
“Defined contribution savers have left tens of billions of pounds in small, dormant pots for at least three years, exclusive research reveals.
Analysis of 600,000 members of workplace schemes by pensions data analysts DCisions shows around 350,000 have been inactive since 2008.
These pots have an average size of £5,276, meaning across all the UK’s 3.5m workplace DC savers, nearly £18.5bn is sitting in pots too small to provide adequate retirement incomes.
The data also reveals around 20% of savers with small dormant pots in 2008 either took a short-service refund or transferred the money elsewhere…
A government consultation on how to deal with small pots is due to start this week and is expected to favour making transferring between workplace schemes mandatory below a certain size.
Standard Life’s head of pensions John Lawson said these figures justify this approach.
“If you amalgamate small pots, people become more engaged with their savings and pay less in charges for just running one pot at a time,” he said.
“But insurers are unlikely to spend the money on developing universal transfer systems off their own bats, so this would have to be driven by the government.”
Adrian Boulding, pensions policy chief at Legal & General, also supports pension transfers becoming standard for job movers.
He added: “People move jobs on average every four years but DC savers do so quite a lot more frequently than this, which explains these numbers.””
As the financial climate gets tougher, and some are forecasting another Credit Crunch in 2012, many people are now looking at their old pension pots and looking to raise cash from their pension, rather than just wait til it matures when they retire. And as retirement ages are increasing and people have to work longer, it is becoming increasingly important that the Government takes a lead in pushing the pensions industry to find workable solutions to unlocking the value of these “frozen pensions”.