Article by Phil
We’ve recently looked at the value of a pension tracing service, but why do people lose track of their pensions?
One obvious reason is the failure to notify your pension provider when you move address which happens lot.
But the number of “lost” pensions, in particular small pots, is likely to increase because of auto enrolment. It’s a natural consequence as people change jobs more frequently and just forget and leave behind their auto enrolment pensions which were started by their employers. There are currently 8 million of these “pots” according to the Pensions Policy Institute, calculated on the basis of pensions where there have been no contributions or withdrawals. But this figure is estimated to increase to up to 28 million over the next 15 years, a 300% increase.
These small pension pots are not really helping anyone. The pension scheme operators although applying charges to these pots are frustrated by the costs of administrating these pots which means that they lose money. For example, the maximum charge level on auto enrolment schemes is 0.75%. On a £100 pot that’s 75 pence, but The Pension Regulator levy on funds is 1.1%, or £1.10 which means that the pension administrator loses 35 pence even before they take into consideration their own operating costs for handling and processing the pension. Perhaps then it’s no wonder their customer service is so poor.
The levels of customer service offered by most pension providers really does leave something to be desired. For example, our standard experience is that we will be on hold for 20 to 30 minutes to have a call answered. But sometimes it can be worse, much, much worse. This week for example we have spent over 2 hours on hold twice to the same company, Mercers who administer many workplace schemes (for example Smith & Nephew, Yule Catto, Whitbread, Mal Tools etc). We have written to complain, but our complaints aren’t even acknowledged.
If these companies were customer facing they would go out of business. But if you think about it they are customer facing. These are the companies who are managing your pensions usually appointed by your employers. I’m not sure how your employers would feel if they thought you had to wait over 2 hours to have a phone call answered. It’s usually to ask straight forward questions, ask for valuations, or to make simple requests for information (many of which should have been provided in the first place) – stuff that shouldn’t take so long. It’s not as if you don’t pay enough in charges to pension companies in the first place. These levels of service are something that The Pension Regulator should really take a serious look at.
It’s no better for the pension holders themselves either. They are being subjected to charges and seeing no potential for growth.
So, what can be done?
Well. The Government has already made a start by preventing any charges being applied to values under £100, but this doesn’t solve the problem. According to the data over 50% of pension pots are between £1,000 and £100. Only 25% are under £100.
Legislation needs to go further. There is a proposal currently under consideration to allow automated consolidation of small pots without the need for individuals to get involved. Whilst some Pension Advisors think that there could be better options like allowing transfers into ISA’s to allow earlier access to the pots, it seems that automation makes the most sense.
One thing to also think about is who would be responsible for consolidating pension pots? Now there are several so called “pension aggregators”, companies like Pension Be who advertise heavily with the consolidation message. But what do they do with the consolidated pension pots? They “place” them with one firm. Of course, this is the outcome that people are looking for, but what’s then missing is the “advice” element. It’s one thing having your pensions in one place, it’s quite another to know whether that one place is the right place.
