Originally published on ftadviser.com
How to help your clients find lost pensions
When it comes to helping clients find their lost money, advisers have to tackle one particular problem first: apathy.
Pension engagement – or a lack of it – is a pressing issue in the UK. While it is nothing new, many people are problematically passive when it comes to saving for their own retirement.
This is not their fault. Typically, an individual is enrolled in a workplace pension scheme, but loses track of their different pension pots as they change employers over the course of their professional lives.
Research has exposed the extent of the problem over recent years.
Analysis conducted by Hargreaves Lansdown revealed that 200,000 people have contacted the Department of Work and Pensions over the previous four years to ask for assistance in tracking down lost pensions. Clearly there is an issue.
Worse still, experts anticipate that there is currently an estimated £20bn in lost pensions waiting to be claimed.
Clearly, the pension market is rather opaque, leaving savers in the dark about how much they have tucked away – for many, this only becomes apparent as they advance through their 40s and 50s, when retirement becomes a more critical focus.
The process is time-consuming and fiddly.
Unfortunately, it is too late by then; waiting until retirement is looming to then consider how best to prepare financially will likely mean a saver has missed out on better managing their pension pots to ensure maximum returns.
More ought to be done to help people find and manage their pension pots. Indeed, there are people across the UK who have, quite literally, thousands of pounds saved in a pension that they are either not aware of, or unable to hunt down.
It is an issue that has become more acute during the pandemic – the temporary suspension of the triple lock, the capping of the lifetime allowance, and constant uncertainty surrounding the sustainability of pension tax relief have all caused saver confidence to plummet.
What’s more, the almost inevitable rise in interest rates that lies on the horizon, coupled with the National Insurance hike coming into effect in April 2022 to help pay towards social care, both serve only to heighten the urgency for savers to take control of their financial situation.
All of this places a heavy burden on advisers. After all, as they work to secure the best possible financial outcomes for their clients, they must first establish the exact value of their existing investments and savings.
However, this is only possible if they can locate the whereabouts and value of a client’s pensions.
Out of sight, out of mind?
What’s driving this lack of engagement?
To tackle this issue, we must first consider why there remains a problem with a lack of pension engagement.
Throughout the previous two decades, the UK’s job market has become increasingly fluid. As such, people are moving jobs a lot more frequently than before; indeed, recent research has shown that the people now change jobs 12 times throughout their career.
The introduction of auto-enrolment in 2012 means that employees will now accrue a new pension pot in every permanent job role.
Of course, AE was an admirable policy to help people save for retirement; the problem is that, by automating the process, many employees choose not to think any further about their pension savings.
What is more, it gives a false sense of security that whatever they are saving through AE is sufficient for retirement. “Out of sight, out of mind”, you could say.
So, people are building up multiple pension pots throughout their careers without keeping a firm handle on what is saved and where. And, unfortunately, it is difficult for an individual to track down their lost pensions.
Currently, the government offers a pension tracker service to help adults discover lost pensions. However, the process is time-consuming and fiddly.
Indeed, the government’s pension tracker only tells users the name of their pension provider and its contact details – so it is left up to the user to find out other important details.
The government has also invested heavily in the development of a pension dashboard, which promises to help savers track down their lost pensions and help them view all their information in one place.
While a promising endeavour, the dashboard has experienced may delays and is currently scheduled to launch in 2023.
Yes, it has the potential to transform the way people engage with their pensions, but industry bodies have understandably labelled the government as having been “worryingly slow” in its progress to date.
Government services aside, there are pension providers that will conduct a more thorough pension hunting service, where an individual can find out the total sums of each lost pension pot.
However, these services are not impartial, and only usually allow people to find out the value of their pension pot once they have agreed to transfer all the located funds to the said provider.
This situation is not ideal – and transferring all funds to one specific provider might not necessarily be in a person’s best interest, so professional help would be imperative.
Enter financial advisers, who have a key role to play in guiding clients through this complex, muddy process.
Involving advisers
As stated, the goal of any adviser is to help the client secure the best possible financial outcome. However, this is a near-impossible task if they do not have access to all their client’s pension information.
Pensions can be complicated, and if a client is left to gather the information themselves, it is highly likely that some key details may be missed.
For example, while a client may have used the government’s pension hunter to find the value of their missing pension pots, they may only receive parts of the information required, and they may also need help in understanding the details they do obtain.
Surely, then, it makes sense to have advisers more involved in the pension hunting process, thereby ensuring their clients are able to make the most informed decision about their financial futures.
However, how can advisers help where other providers and platforms fail?
It would make sense for advisers to be involved with the pension hunting process from the get-go. And to ensure that clients can trust advisers, they must ensure that the process is as simple and transparent as possible.
Facilitating a transparent process will enhance clients’ confidence in an adviser.
Thankfully for advisers, there are tools and third parties on hand to help. Indeed, there are online platforms that offer an impartial service to track down a client’s lost pensions and display all the information in a clear, concise format.
And when an adviser has access to such information, they will be able to offer the appropriate advice to their client – be it pension pot consolidation or creating a new investment strategy.
Such tools are admittedly more of a rarity. As discussed earlier, the majority are either biased to one provider, or do not improve the efficiency of the pension hunting process.
Consequently, some advisers may be wary of the cost (both financial and time) when using different platforms or technologies; it can be a laborious process and consumes a lot of resources to manually track down lost pensions.
Use of technology
Thankfully, the right tools do exist and once onboarded appropriately, the benefits to advisers of using such platforms far outweigh the cost.
For example, our own financial wellbeing platform Mintago has found more than £4m worth of lost pension pots with our pension hunter service in the past two years alone; when you extrapolate these figures across the market, it highlights the value such tools can offer.
And the ease with which advisers will be able to hunt down lost pensions has the potential to transform the advice they can offer clients by showing them, in real terms, exactly how much money is saved in different places.
Thereafter the guidance they offer will take into account the client’s complete financial picture, meaning better informed and more accurate advice.
What’s more, facilitating a transparent process will enhance clients’ confidence in an adviser.
Indeed, recent research has suggested that adults are wary to take advice from advisers because their processes are too complex, and they use too much jargon in their explanations.
As such, using online tools and platforms to show a client exactly how much money they have saved will help them to not only better understand their financial situation, but also the reasoning behind the adviser’s tailored recommendations.
Can there be a more compelling way to build a strong relationship with a client than to show them, in black and white, exactly how many thousands of pounds they had lost in the ether of past pensions?
As we enter 2022, there has never been a better time for advisers to reassess their client offerings to ensure that they are securing the best possible results. And as such, advisers should ensure they have all the necessary tools on hand to achieve this.
Pension hunting technologies could prove to be invaluable to advisers and clients alike – not only will it help clients better engage with their pension, but it ensures advisers are making recommendations based on the fullest possible picture in a more cost-effective way.
It would be a hugely worthwhile service for advisers to consider in the months to come; expect pension hunting to be a prominent trend in 2022 and beyond.
This interview is outside the Mintago Blog