Labour's plans for orphan funds

With a mouth-watering £15 billion languishing in forgotten assets in savings accounts, pension schemes and life policies, it is not surprising that there has been some keen interest in these funds recently from political parties.

In its manifesto, Labour said that it wants the financial services industry and the government to make more of an effort to find the owners of unclaimed assets. It has also said that it wants these funds channelled back into the community. The Conservatives, on the other hand, said that they want this money to be used to fill shortfalls in pension schemes - and there are plenty of these around.

Labour seems to be serious because it has mentioned orphan funds in previous manifestos. It has also established a third-party body the Balance Foundation which would collect orphan funds from all the financial institutions and channel them back into the community probably through various charities.

While this is supported by the finance industry, there are concerns, such as how long an account would have to lie before being considered dormant and swept away into a charity? As Keith Hollander, managing director of the Experian-owned Unclaimed Assets Register (UAR), said, there is the question over what constitutes a dormant account because some people may not have forgotten them at all but be deliberately keeping their nest egg for a rainy day.

Mr Hollander added that these days electronic communications has made it fairly easy for financial institutions to trace their clients so if they were forced to make more effort to find their forgetful customers, it wouldnt be too onerous a task. In fact it would give them an opportunity to get in touch with customers and cross-sell more products.

Eire introduced a system a few years ago to make practical use of orphan funds and many finance companies expect the UK to adopt this model.

Once a customer has failed to conduct a transaction on an account for more than 15 years, the institution puts it into a dormant file. If by the following 31st March, the customer still hasnt made any contact, the funds are transferred to the National Treasury Management System for distribution to a charity. In the case of somebody making a claim after the 15 years or more, even it had been filtered into a charity, the money would be returned to the rightful owner.

Tony Vine-Lott, director-general of the Pep & ISA Managers Association, welcomed the suggestion by the Labour Party. He said that at the moment the system for tracing orphaned funds is fairly unco-ordinated. Four main bodies provide a tracing service - the British Bankers Association and the Building Societies Association for savings accounts; National Savings & Investments and the UAR for insurance and life policies. All are free part apart from the UAR, which charges £18 including VAT and a 10% fee which goes to charity.

Mr Hollander thinks that the next government could set up a task force and ask one organisation, such as the Financial Services Authority, to create a single tracing body, which would be easier for us to use.

You never know, one day soon you might get a letter from an institution telling you about a small fortune you had forgotten about, which isnt as far fetched as you might think. There are thousands of pensioners living on a meagre income because they have forgotten about old pensions. Its really quite incredible, said Mr Hollander.

Organisations providing a tracing service:

British Bankers Association (www.bba.org.uk 0207 216 8909)Building Societies Association, Dormant Account Scheme, 3 Saville Row, London W1S 3PBNational Savings & Investments (www.nationalsavings.co.uk 0845 964 5000) Unclaimed Assets Register (www.uar.co.uk 0870 241 1713).

09 May 2005 © Moneyextra.com

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