Dormant accounts: spending other peoples' money
To date four finance ministers have announced the existence of the fund, yet not one penny has been spent, presumably because of differences as to how it should be allocated.
Finally, with no government in place, civil servants have taken action. The launch of the fund was announced for the fifth time last month and this week a consultation has started on how it should be deployed.
It is hoped that the fund, currently sitting at £16 million, will be operational next year. Monies will be distributed by the National Lottery Community Fund. Following the consultation the National Lottery will devise a strategy which will be laid before the Assembly.
It will be a welcome boost to good causes. However both those applying for funding and those doling out the money should pay careful attention to where it comes from. This is a funding pot like no other. Essentially it is a mechanism for spending other peoples’ money.
Accounts are categorised as dormant by banks and building societies when they fall into disuse. Essentially these are accounts that people have forgotten about. They might have been set up for children by parents or relatives and were forgotten about. They could belong to people who have changed address and forgotten to tell their bank, or people who have changed their names on getting married. Some of the owners may have mental ill health and lack the capacity to recall their investments and to retrieve them. In many other cases the account holder will be dead and the account missed in the probate process.
In this context £16 million may not be a huge amount of money in terms of funding good causes, but it is a hell of a lot if you think of it as financial lost property, which of course, it is. It suggests that far too many of us are not managing our finances well and points to a widespread issue around financial literacy. This should be the most important lesson from the existence of the fund. It’s a pity that, to date, this has not even been mentioned in the Northern Ireland context.
It is important to state that if you forget about an account that does not mean it becomes irretrievable. Dormant accounts remain your property in perpetuity and there is a simple, free mechanism for re-claiming them. This does not just cover the sum involved but also any interest that may have accrued. This is an important principle and all parties involved in the new fund have a moral obligation to publicise this.
It should be pointed out that dormant accounts are not released for distribution until they have been inactive for 15 years. This minimises the risk of the monies being reclaimed, but it does happen. The Association of British Insurers recently cited a case of a woman in her 70s being reunited with £11,000 from an account she had forgotten about.
This is not to say that putting dormant accounts to productive use is not a good thing. It was originally the idea of Gordon Brown when he was Chancellor of the Exchequer. At that point these monies were being held in the banks as assets which was good for the profitability of financial institutions but not society.
The subsequent Dormant Bank and Building Society Accounts Act 2008 has led to hundreds of millions of pounds from dormant accounts being put to good use in the rest of the UK and the one positive to be drawn from the delay in Northern Ireland is the opportunity to study the impact of this investment elsewhere and learn from it.
The way that it works is that banks and building societies can transfer accounts which have been inactive for 15 years or more to Reclaim Fund Ltd (RFL). RFL ensures that sufficient funds are held to meet any repayment claims that may arise in full and in perpetuity. Since the scheme’s inception, over £1.2bn has been transferred to RFL by participating firms, and over £600m made available to good causes.
There will be much larger sums on the way too. There are plans to expand the scheme to cover insurance policies, pensions, investments and the like. In April the UK government published: The Dormant Assets Scheme: a blueprint for Expansion
However it has been very clear about respecting the funds’ origins. The report states: “A founding principle of the dormant assets scheme is that customers should always be able to reclaim the amount that would have been due to them had a transfer into the scheme not occurred. For an expanded scheme to succeed in the future, this must remain the case. Consumer protection is at the heart of the scheme, and the reason it has been successful to date is that firms and their customers alike have confidence in it.”
There are a few lessons here for Northern Ireland. Publicity for the scheme should not just concentrate on promoting its benefits to society. It should also highlight the issue of dormant accounts and the fact that they are retrievable in perpetuity.
And it would also seem appropriate for at least some of the funds to be aimed at improving financial literacy and encouraging better financial management. This, however, is not the focus.
The stated aim of the funding for Northern Ireland is that it should: “benefit the VCSE sector by growing its resilience, increasing capacity and encouraging sustainability.” A key part of the consultation is to explore what sustainability looks like for the sector and so therefore how such a fund might achieve this.
Furthermore the sector is being invited for its views on how best the funds can be distributed – through grants, or loans, how any applications should be assessed and who should make the decisions.
The first question in the consultation document is: “How do we explore ways of spending down all or some of the initial £16m pot quickly over the coming years?”
Whilst the desire to make up for lost time is perfectly understandable and the need across the sector is very urgent a more lasting and suitable legacy might be to set up a trust fund for the monies and pay out interest accrued to good causes. This would be in keeping with the principle that we should not be spending other peoples’ money, whilst at the same time utilising financial lost property for the public good.
In any event and whatever form it takes the fund will be a very welcome boost at a very difficult time. Full details on the consultation and how to respond are here.
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