The ‘lost pots’ issue is getting worse – it’s time to act

Automatic enrolment brought more people, and more money, into the pensions system.

It has taken workplace pension participation rates from below 50% to around 80%, and grown the master trust market so that it was recently reported to administer 23.7 million active and deferred defined contribution (DC) memberships.

The automatic nature of this policy means that the majority of the population has been brought into pension saving. It sidesteps the issue of low engagement, bringing in many people who might not have otherwise had a pension at all.

This automaticity is, however, a double-edged sword: it has given rise to the problem of lost pots.

A growing problem

People are being enrolled into a new pension plan each time they start a job with a new employer. Throughout their career, a saver may accumulate many relatively small pots, which they no longer contribute to or engage with.

It is easy to lose or overlook postal or electronic communications from old employers or pension providers. If you move house and neglect to update your pension provider with your new address, your pension provider may not have any easy way to get in touch to link you with your pot. If your old employer goes out of business, you lose your link to your pension provider.

On top of this, if the value of your pot from a short-term employer is not be very high, it may feel less pressing and easier to procrastinate decisions and action.

Lost pots are both a problem for savers and providers. If savers don’t rediscover them, they will have less money in retirement. However, even if they do eventually rediscover a lost pot, they won’t be able to make decisions and plan for retirement as effectively until they do find it.

Providers are faced with the expensive process of tracking down pot-owners on a pot that is already potentially uneconomic to administer.

The lost pots survey

For this reason, the Pensions Policy Institute (PPI) conducts the lost pots survey. This provides aggregated statistics of how many pots providers consider lost, how much they are worth, and describe the demographics they belong to.

The PPI found in 2022 that there was a total of 2.8 million lost pots, valued at £26.6bn. Since the 2018 survey, that is a 73% increase in number and a 37% increase in value.

These figures don’t just show the scale of the problem – they show that it is getting worse.

There are many lost pots out there, and as you read this, more are being created. Currently, there are partial or proposed solutions that offer to reunite owners with existing lost pots, stem the creation of new ones, or both.

Potential solutions

The Pay Your Pension Some Attention campaign, which is organised by providers, appeals directly to savers to find their own pots.

The government operates the Pension Tracing Service, which holds information linking providers to employers, including employers that have ceased trading.

The Pensions Dashboard Programme is developing a system that will enable an interface between providers and savers, so that savers will be able to see a ‘dashboard’ showing which providers have pots that they own.

The government has also consulted stakeholders about solutions for the problem of small pots more generally, and proposed two solutions.

The first is a default consolidator framework, which would see the creation of a ‘clearing house’ that providers could submit small pots to, after which these would be consolidated into the largest identified pot belonging to that member. This would leave members with fewer, larger pots, making them easier to keep track of.

The second proposal is the ‘pot for life’ model, where rather than providers being associated with employers, individuals select their own providers. Employers would need to contribute to a range of providers associated with their different employees, rather than the one provider chosen by the employer.

All of these solutions have challenges: anything that requires engagement from savers, such as publicity campaigns or dashboards, may require a lot of sustained effort to be effective in the longer term. Savers are typically disengaged, and even if something can trigger a spike in engagement, this may not provide a lasting solution if engagement levels drop back down.

Any system that requires a fundamental change to the system, like dashboards, a clearing house, or a pot-for-life model, can face various implementation challenges, both legal and practical.

Within this landscape of solutions, the PPI is currently refreshing the lost pots data, providing a current snapshot of the problem and progress to date.

If any new solution comes into play, then being able to gauge the problem before and during its existence will be vital to assessing its effectiveness. If you would like to take part in the survey and help to inform our research, please click here to participate or contact us.

John Upton is a policy analyst at the Pensions Policy Institute.

Further reading

How do you solve a problem like small pension pots? (17 April 2024)

Why consumer confidence could undermine pots for life (16 April 2024)