Session 2021-22
Dormant Assets Bill [HL]
Written evidence submitted by the Association of British Insurers (ABI) (DAB09)
Dormant Assets Bill Committee Stage
ABOUT THE ASSOCIATION OF BRITISH INSURERS
1. The Association of British Insurers is the voice of the UK’s world-leading insurance and long-term savings industry. A productive and inclusive sector, our industry supports towns and cities across Britain in building back a balanced and innovative economy, employing over 310,000 individuals in high-skilled, lifelong careers, two-thirds of which are outside of London.
2. Our members manage investments of nearly £1.7 trillion, collect and pay over £16 billion in taxes to the Government and support communities across the UK by enabling trade, risk-taking, investment and innovation. We are also a global success story, the largest in Europe and the fourth largest in the world.
3. The ABI represents over 200 member companies, including most household names and specialist providers, giving peace of mind to customers across the UK.
EXECUTIVE SUMMARY
4. We welcome the opportunity to submit evidence to the Dormant Assets Bill Committee .
5. W e welcome the expansion of the Dormant Assets Scheme to cover more products including some insurance and pensions. We have been working closely with the Government and our members on the potential for expanding the Scheme and we agree that the principles around reunification first, full restitution, and voluntary participation are critical to the success of this initiative.
6. Our industry spend s millions of pounds on reconnecting customers with their lost funds . However, even after there have been significant efforts to reconnect with customers, this may not always be successful. The current Scheme has shown that using dormant assets to support good causes has a demonstrably positive impact throughout society.
7. We further welcome this opportunity for Government and industry to work together to support customer reconnection efforts. An enquiry service to verify customer addresses against Government data will bring the step-change in reconnection efforts that are needed, which will build on the extensive tracing and reunification efforts currently underway. Our members estimate that it would increase the reconnection rate from the current average of 35-55% to 85-90%. Based on their overseas experience, the Swedish government currently allow such a check against their tax authority’s record, and the confirmation rate is 99%. We urge the Government to do all it can to ensure this can happen quickly, to allow customers to be reunited with money which is rightfully theirs.
8. There are still some outstanding technical issues regarding tax and regulatory implications, liabilit ies and providers’ ongoing responsibilities given by the agency agreement to work through to make the Scheme successful. The Government and the Reclaim Fund Limited (RFL) will need to clearly communicate these to potential participants to ensure the expanded Scheme ’s success .
9. T he Bill will give the Government the power to review the spending direction s in England. We would like to work with the Government to ensure that some of the spending allocation will continue to be attributed towards supporting indiv iduals’ financial education , which will be crucial to reducing the significance of the dormant assets issue in the long-term .
DETAILED RESPONSE
Current state
10. The unclaimed assets issue is sizable, with an estimated £19.4 billion of pension pots estimated [1] to be lost. These unclaimed pensions belong to gone-away customers who providers have lost touch with, most commonly because of unnotified home moves.
11. The insurance and long-term savings industry dedicates significant resource to tracing gone-away customers’ new addresses, but a key barrier is the ability for firms to confirm that the customer’s new address is correct. If a provider believes a customer lives at a new address, they rely on customers responding to communications from them to confirm that fact. Until a particular customer has responded to a communication from the firm, they are unable to share the full detail of why they are seeking to contact them, i.e. the payment to that customer of a dormant asset. The current reconnection rate, which is in effect the number of customers who respond to communications from firms trying to reconnect with them, is estimated to be only around 35%-55% across the industry. One reason for why the rate is so low is because many customers are suspicious about responding to unsolicited communications from firms.
12. By defining dormancy and the project scope carefully, the expanded scheme can make use of the truly dormant assets for good causes, while their rightful owners retain the right to reclaim fully and perpetually. We have worked closely with the Government and the industry champions to ensure that the definition is right and believe the recommendations in the Dormant Assets Scheme: A Blueprint for Expansion [2] report has been accurately reflected in the Bill. It is estimated that the insurance and pensions products included in the scope of the proposed expanded Scheme have the potential to contribute £575 million further to good causes [3] .
Remaining technical issues
13. The Bill will be the first step to enable the industry to transfer dormant assets to the RFL. However, it will be important to note that there are remaining technical issues, especially the legislation changes to maintain tax neutrality, that need to be tackled by other departments and regulators. We will be keen to work with the relevant government departments to ensure the industry’s remaining concerns of potential and unintentional liabilities could be resolved. These changes should also be made and communicated to the industry as soon as possible, so potential participants can start considering and preparing for participation once the expanded Scheme is available.
14. Representing investment platforms in our membership, we ask for clarification as to which assets they would be allowed to transfer under the Scheme. To our understanding, platforms are partially excluded from the investment and wealth management sector’s scope. They will only be allowed to transfer client money assets but not investment assets. Any of these firms’ dormant assets, such as shares in companies and units in funds, will need to be disinvested into cash and treated as client money to be eligible for transfer. Since the reclaim value of client money is different from that of investment assets, if the customer comes forward for a reclaim, they will only be able to receive the cash value at the time of transfer rather than the value at reclaim. Platform participants will therefore need to bear additional liabilities for selling their clients’ dormant investment assets at the time of transfer. It will put both the participants and customers at risk of financial loss.
15. We see little incentive for platforms to take part in the Scheme in this way, as most of the assets they hold will likely be in the form of investment assets rather than client money. By comparison, some investment institutions will be able to transfer liquidated dormant investment assets directly and with a different reclaim value. The reclaim value for these assets will be the value at reclaim plus any distributions that would have been payable to the owner after the assets were liquidated and transferred to RFL, as well as any accrued interest and adjusted for any fees owed per the fund’s policies. This gives participants and customers better protection, and uphold the Scheme’s principle to allow full and perpetual reclaim. Therefore, we would like to understand why platforms are excluded from this arrangement.
Opportunity to improve reconnection efforts
16. The Scheme’s expansion and its principle to prioritise repatriation provides an important opportunity for the industry to work more closely with the government to improve reconnection efforts. As previously mentioned, the industry is already undertaking extensive work to reconnect customers with their products. The step change needed, as proposed by the ABI and our members in various consultation responses, is to automatically verify customers’ addresses against the Government’s record. We imagine the system will be a simple "yes/no" confirmation-based enquiry service, which verifies whether the new address that providers located matches the Government’s record.
17. From discussions with our members, if the industry could check a customer’s potential new address that they found against the Government’s record, an affirmative response would give them sufficient confidence to update the record without a direct response from the customer. Our members estimate that it would increase the reconnection rate from the current average of 35-55% to 85-90%. Based on their overseas experience, the Swedish government currently allow such a check against their tax authority’s record, and the confirmation rate is 99%. As sufficient tracing is a requirement to take part in the Scheme, if this service becomes available it should be made accessible to the industry so more firms can qualify.
18. We appreciate that the Government has committed to exploring different legislation routes to develop this service and there are several barriers to overcome [4] . However, more progress will need to be made as soon as possible so money that goes into the scheme does not need to be repatriated shortly afterwards due to the major improvement in tracing and verification ability. We are sympathetic with the request’s complexity, though believe this is vital in both ensuring this initiative is a success and demonstrating to the public that Government and industry are doing all they can to reconnect customers with their assets. Ideally it would also make the RFL more confident with distributing the fund to good causes, instead of reserving a significant sum for repatriation.
19. This service would be the last piece of the puzzle to the industry’s tracing, verification and reunification efforts, taking the Bill from a welcome expansion of the Scheme to a step-change in the ability to reconnect the public with their assets. Filling this gap would also be a major pull in encouraging firms to join the voluntary scheme. We continue to seek commitment from the Government to advance this work at pace and explore the opportunity to do so under wider policy developments. For instance, the proposed review of the Digital Economy Act could allow data sharing for public service delivery. We would been keen to support further discussion on the subject.
Transparency of spending direction
20. The Bill will give the Government a new power to review the Dormant Assets Fund’s spending direction in England. Currently 83.9% of the distributed fund is alloc ated to England [5] . While the change will align the spending approach with the devolved administrations ’ model , it will have a decisive impact on the distribution of most of the fund. The existing spending directions in England allocate a portion of the fund to improve financial inclusivity , but it has received only less than 15% of the total distributed fund so far . This is an area that is of the uttermost importan ce to our sector, as we anticipate that improving the public’s financial capacity will reduce the prevalence of the unclaimed assets in the future. Not only does this echo the Scheme’s principle , but it is also a major incentive for the industry to participate . Therefore, w e would like to see more explanation of how the spending direction might be decided in the future. If possible, financial inclusion should remain one of the spending directions with a similar portion or more of dormant assets fund allocated to it. We understand that any changes to the spending direction will be further consulted, and would welcome t he opportunity be involved in the conversation. The decision process of fund allocation needs to be as transparent as possible, so the Scheme can remain accountable to the ir participants and stakeholders.
21. Although the Bill will only expand the main Scheme to other sectors, we see the merit of making the alternative scheme arrangement available to new participants in the future. Alternative scheme , which is currently only available to banks and buildings societies with a balance sheet lower than £7billion, allow firms to support local and aligned charities using dormant assets. This gives participants more involvement in spending directions and can encourage firms which have a stronger commitment to their local community to take part in the Scheme.
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