UK Govt to Expand Dormant Assets Scheme to Insurance & Pension Products

It’s been a successful way for the UK government to acquire cash – over £745 million according to the Govt – from dormant bank and building society accounts, so why not expand it to include life policies that have matured or unclaimed private pensions?

Here are some extracts from the latest govt update;

“Expanding it to include new assets in the insurance and pensions, investment and wealth management, and securities sectors provides the government with an exciting opportunity to support industry’s work to reunite more people with their forgotten assets. Where that is not possible, the Scheme will enable that money to be put to good use, supporting responsible businesses to effect positive change by redirecting it to some of the UK’s most pressing issues.

This expansion has the potential to bring £1.7bn of additional assets sitting idle into the Scheme, making £880m available to amplify its impact, which has so far included supporting unemployed young people, those in financial difficulty, and the UK’s growing social investment market.”

It really is astonishing that this money is going to be used to help fund those on benefits, or those unable to budget and run up debts to the point where they are insolvent. Basically the prudent of the past are subsiding the financially illiterate of today. 

Here’s more on how the new expanded scheme will work;

After carefully considering all responses, the government intends to legislate to include additional assets across all three sectors in the Scheme, as set out in Table 1 below. We are also considering options whereby certain pension products may be included in specific and tightly prescribed circumstances.

Table 1: Additional assets in scope for expanded Scheme

Participants must first make efforts, based on industry best practice, to reunite assets with their owners. Only cash will be transferred into the Scheme; any non-cash assets must first crystallise or be converted to cash before being eligible for transfer. Definitions of dormancy and reclaim values will be tailored to asset classes based on market practice and, where relevant and appropriate, existing regulations. This is to ensure that, as far as possible, only genuinely dormant assets are transferred into the Scheme. Owners will always be able to reclaim the full amount owed to them, and the transfer and reclaim process will be tax neutral.

INSURANCE AND PENSION ASSETS

Having carefully considered all consultation responses, the government will include the insurance and retirement income assets set out in Table 3 below. In addition, it will reconsider whether contract-based defined contribution pensions should be included in an expanded Scheme. Several responses provided detailed, technical suggestions for how to define these assets in legislation, which the government is considering.

Table 3: Insurance and pensions sector assets in scope

Pension products

When the consultation took place, the government did not believe that pensions or retirement income products should be included in the Scheme at this time. A question was included as to whether there would be any objections to this exclusion. Most insurance and pensions organisations that responded to this question opposed the proposal to exclude pensions and expressed their support for including certain products.

These respondents maintained the position of the Industry Champions, who recommended that certain dormant pension assets be included, provided that they crystallise to cash. Most of these products would only be eligible if the owner had died. In addition, the provider would have to have been unable to contact them or their next of kin for at least seven years, unless it knows that there are no next of kin.

Moreover, the Association of British Insurers (ABI) conducted an opinion poll in June 2020, which revealed that the majority of respondents would not view the inclusion of pensions negatively.^{[footnote 13]} The ABI also surveyed its members, and 38% said that they would be less likely to join the Scheme if pensions were not included, which would reduce the total amount estimated for transfer into the Scheme.

The consultation cited ongoing changes in the pensions landscape, including the introduction of pensions dashboards, as needing time to fully develop. Many responses asserted that the dashboards would interact positively with the Scheme. Both initiatives have the primary aim of reuniting owners with their assets, and the dashboards will make it even more likely that only genuinely dormant pension products that will not be reclaimed would be transferred into the Scheme. With this in mind, the government has decided to include certain retirement income products, set out in Table 3 above, as recommended by insurance and pensions sector respondents.

However, the pensions landscape is likely to evolve considerably in the coming years with the introduction of pensions dashboards and the maturing of Automatic Enrolment (AE) schemes. Although pensions dashboards may complement the Scheme, AE is still in its infancy. It is therefore unclear what its future impact will be and how this will interact with the assets potentially in scope of an expanded Scheme.

In light of consultation responses, and having carried out a full assessment of the impact and feasibility of industry’s proposal, the government is considering options whereby certain pension products may be included in specific and tightly prescribed circumstances. In particular, we will be examining the potential overlap with products which are used for AE, such as group personal pensions, and may be minded to exclude these from the scope of the Scheme. As with all asset classes, consumer protection is at the heart of the Scheme. Therefore, we will also be considering what definitions of dormancy might be applied to any pension products in scope with a preference to focus on where there has been a death notification.

OUT OF SCOPE ASSETS

Some responses from the insurance and pensions sector sought reassurance that certain assets will remain out of scope in their sector. The government confirms that the following assets will be excluded at this time:

• with-profit funds;
• industrial branch policies;
• policies and assets held under group trusts, including occupational pensions;
• general insurance assets;
• personal trusts; and
• assets held by mutual insurers and friendly societies.

MORE INFO

If you want to digest the full Govt text which looks at the expanded scheme operation in detail, then the page is here.