Savers who have lost track of pension and investment funds will have their money used for charitable causes that could aid Covid recovery efforts under government plans to expand its dormant asset scheme beyond bank accounts.
The Reclaim Fund was established in 2011 to distribute the cash from bank and building society accounts that were left unclaimed for at least 15 years. It came after banks were accused of bolstering their balance sheets by sitting on dormant savings.
It has already helped with Covid recovery efforts, having released £150m from the fund to help charities, social enterprises and vulnerable individuals during the outbreak in May.
About 30 banks and building societies take part in the scheme, but the new programme will open to City firms across the insurance, pensions, investment and wealth management sectors after the government puts forward legislation to expand it.
Each sector will have their own guidelines determining when assets should be shifted to the Reclaim Fund.
Firms are expected to make reasonable efforts to track down customers and reunite them with their accounts before transferring them to the Reclaim Fund, which has so far distributed £745m to charitable causes.
Q&ADormant accounts: what customers should do
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Why are bank accounts marked as dormant?
A “dormant” or “inactive” bank or building society account is one that hasn’t been used for an extended period. Officially in the UK it is an account where no transactions have been carried out for 15 years and the owner can’t be traced.
However, banks will often act a lot sooner than that. For example, HSBC says that if a customer is not using an account, it may restrict payments in or out “to protect against fraud”. It will do this after 12 months for current accounts and after two years for savings accounts.
Barclays does the same after 18 months for current accounts and five years for savings. The NatWest group applies the change after five years, and Lloyds Banking Group after three years.
Should I be told if my account has been declared dormant?
In most cases, yes. However, there are no formal rules for how, or how often, banks should attempt to reunite customers with their cash. A short section in the FCA’s banking conduct handbook merely states that banks must “enable” customers to trace and access lost or dormant funds “so far as is possible”, even if they cannot provide sufficient information about their account.
The banking sector is instead guided by its own set of pledges. These state that a bank will write to the most recent address held for the customer before it freezes the account unless mail has already been returned from that address. “It may also make other attempts to trace you,” the pledges state.
Banks are under no obligation to actively search and get in touch with customers with "lost" accounts – which usually means it is up to individuals to initiate a search, if they are even aware they have lost track of an account.
FCA rules governing other parts of the financial services sector – such as life insurance and pensions – set far more robust rules about contacting customers on lost accounts. If insurers initially lose contact with customers, they are obliged to try to trace them again after 18 months and again every three years.
What do I need to do if my account is made dormant?
If you believe your account has been dormant for less than 15 years contact your bank directly. Accounts can typically only be reactivated after customer identification and verification checks..
What if my account has been dormant for more than 15 years and I’ve lost the details?
After 15 years, most banks transfer dormant account deposits into the government-backed Dormant Assets Scheme. This is run by Reclaim Fund Ltd, which aims to hold sufficient funds to cover money paid out to people reclaiming their cash, while distributing the surplus to the National Lottery Community Fund so that it can go towards good causes.
Customers of dormant bank accounts still have the right to get their money back in full after it has been transferred to the fund.
They may wish to start the process of tracking their old accounts by using a free tracing service called My Lost Account.
However, only a small proportion of deposits are ever recovered by their rightful owners after they are transferred, at a rate of just 5% a year.
In total, customers have only reclaimed £93m since the fund was established, which is less than 7% of the £1.35bn collected over the same period and lower than the £147m transferred in 2019 alone.
The Department for Digital, Culture, Media and Sport (took the decision after a four-year review concluded there was widespread support for the scheme’s extension.
It said customers would still be able to apply to reclaim their assets in full at any time, and said the expanded scheme “will have consumer protection at its heart, with the priority continuing to be locating and reuniting people with their financial assets”.
The voluntary scheme has run into controversy. Earlier this year, the Guardian revealed that HSBC had been warned by its own compliance staff in 2017 that it was not doing enough to reunite customers with their cash before freezing their accounts, and was potentially harming elderly and vulnerable savers who may have lost track of their savings.
HSBC denied it had mistreated customers, or that it took insufficient action, and said it had made “substantial and continuous improvements” to its dormant account policy since 2016.