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Time to track down the UK¥s missing pensioners
December¥s pre-budget statement from the Chancellor is likely to include plans for the seizure of unclaimed assets. Pension trustees should regard this as an opportunity, not a threat, argues Tim Marshall of The Shareholder Partnership.

Pensions and unclaimed assets are both hot topics in UK politics at the moment, and for good reason: they both involve dizzying sums of money.

At £27bn and rising, the annual shortfall in pension contributions has been well-publicised in recent years. By contrast, the total value of unclaimed assets in the UK has received little press attention, even though it totals at least £15bn, and could total many tens of billions depending on the ways in which different asset classes are defined as ²dormantÓ.

The latter issue will come to a head in December if, as expected, the Chancellor announces plans to seize, or ²escheatÓ, certain unclaimed assets so they can be ²reinvested in societyÓ. Commentators expect his pre-budget statement to outline the criteria under which certain types of asset will be seized, and what the resulting cash will be spent on.

The scheme under consideration will reportedly include savings and current accounts from both banks and building societies. At present, it is unclear which other asset classes will be affected, but unclaimed pensions are eligible for escheatment in other countries, and even if the UK scheme does not include them at launch it is likely to do so in the near future.

According to a recent survey, unclaimed pensions in the UK have a total value of around £3bn (compared with around £5bn for dormant accounts). This huge sum is not simply the result of people moving jobs and forgetting about entitlements to occupational pensions; it is also being fuelled by factors such as the increased numbers of elderly people moving into long-term care and, as a result, losing track of their finances.

²The Government continues to believe that it is right in principle that more should be done to reunite assets with their owners,Ó said the Treasury in section 5.86 of the 2005 Budget. It added: ²Where assets and their owners cannot be reunited, the Government believes that the assets should be reinvested in society, as long as the original owners¥ entitlements to reclaim are preserved.Ó

There have, of course, been many different interpretations of the word ²societyÓ in this clause. A report in The Times in July suggested Mr Brown wanted any escheated funds to be paid to charities. Meanwhile, the back-bench MP Frank Field, head of the Pensions Reform Committee, has suggested repeatedly that unclaimed assets should be used to compensate the victims of collapsed pension funds.

Until the details of the Pre-Budget Statement are finalised, leaked and/or published, it will remain unclear whether the jackpot will be won exclusively by charities or shared with Government initiatives.

Another matter that still needs to be clarified is how any new scheme will work alongside or supersede regulations from the Financial Services Authority (FSA). According to sections 4.3.103 to 4.3.105 of the FSA¥s Client Assets Sourcebook (CASS), any company that ²receives or holdsÓ client money in a pooled account for investment purposes can claim that money for itself if ²there has been no movement on the client¥s balance for a period of at least six years (notwithstanding any payments or receipts or charges, interest or similar items)Ó, and if the company has taken reasonable but unsuccessful attempts to trace the client concerned.

At present, it is therefore in the interests of such companies to do the minimum necessary to reunify their unclaimed assets. This problem could be behind a test balloon floated by the Treasury earlier this year, when it suggested the term ²dormancyÓ could, in future, refer to a period of as little as three years.

When Ireland introduced new escheatment laws in 2001 ÿ also to raise money for good causes ÿ it set the dormancy period at 15 years. A recent survey later suggested 81% of the UK public were in favour of a period of 10 years or more. So if the UK Government goes for a compromise figure of over six years then it could have to bring the FSA regulations into line or risk a large reduction in the total amount of ²unclaimedÓ assets available.

At all events, we are likely to see a large sum of money being targeted for escheatment in the early stages of the new scheme, followed by a steady annual cash-flow as more financial products cross the dormancy threshold.

Under the Irish scheme, financial institutions were given two years to reunify their supposedly dormant assets and, miraculously, managed to trace 60% of their lost customers before the deadline. They may have been disappointed to lose control of the sums involved, but I would argue they also benefited from re-establishing relationships with forgotten customers. Notwithstanding the fact that any charitable donation is a good thing, it is far cheaper to sell to an existing customer than to find a new one.