Estimates put funds lying dormant in accounts at £1bn-£5bn for the UK alone. But the issue of how to identify this cash and what to do with it is far from straightforward, as Stephen Timewell explains.
What happens to the assets that are lying dormant in bank accounts around the world? Many accounts – where the funds may be forgotten or where the account holder may be deceased – can be used, especially for charitable purposes. But when can an account be designated as dormant, what is included in inactive assets and how much money is in these accounts?
A decade or so ago, Swiss banks attracted the headlines with regards to unclaimed assets in the form of money and property dating back to World War II and Nazi Germany. Estimates stretched to $60bn. Today the issue focuses on bank accounts all over the world and how funds can be better used.
Best use of funds
In the UK, chancellor Gordon Brown announced plans late last year for harnessing funds worth several hundred million pounds but a clear process is yet to be established. At present, the British Bankers Association, representing the UK banks, is negotiating with the government over tax, legal and accounting issues surrounding the use of unclaimed balances for charitable purposes.
While the UK may produce a clear ruling on the subject this year, countries such as the US, Canada, South Africa, Australia and New Zealand have had laws on unclaimed assets for some years.
In Europe, Ireland appears to lead the charge and its Dormant Account Act 2001 states that financial institutions have to contact customers if they have not completed a transaction on their account in 15 years or more. If the institution cannot contact the customer, the money in the account will be taken over by the state. Funds in accounts that were not reclaimed by the end of March 2003 have been transferred to the Dormant Accounts Fund, set up and managed by the National Treasury Management Agency (NTMA).
In its short life, this Irish fund has accumulated €300m, with €196m transferred over by banks and building societies in the first year of the legislation.
UK accountancy firm Grant Thornton, looking at the Irish model, notes: “The UK government estimates that over £5bn might be held in dormant bank accounts in the UK, although the financial services industry believes the figure to be closer to £1bn. Considering that the UK population is around 15 times that of the Republic, the actual amount [to be used in a fund] could easily exceed £2bn.”
Grant Thornton partner Patrick Storey explains: “Looking at it another way, the first transfer in Ireland was almost four times even the Irish government’s early expectations. If such a situation was replicated in this country, UK dormant accounts could yield up some very substantial riches. The UK Commission on Unclaimed Assets itself has indicated that the government’s figure of £5bn could be at the lower end of the spectrum.”
Views on dormant funds vary considerably, however. While Mr Storey believes UK estimates should be on the higher side and that UK measures “could see as much as £100m of annual profits for UK banks go up in smoke”, David Sayer, head of retail banking at global professional services firm KPMG, takes the opposite view. Besides his much more conservative view on the size of funds, Mr Sayer notes: “People vastly overestimate the impact of this on banks. Any transfers will have a minimal impact on the banks.”
Data is critical and there are definition issues over what constitutes a dormant account and what the inactivity period should be. Mr Sayer, for example, favours a 15-year period for the UK. The Shareholder Partnership (TSP), a UK company that has helped its clients, such as banks, return more than £20m to their stakeholders, has produced a table of unclaimed assets in various countries around the world, demonstrating the variance of views (see download table).
The demographics issue
According to TSP managing director, Tim Marshall, ageing demographics are causing increasing complexity, adding that in an analysis of 75,000 unclaimed asset records, deceased accounts formed 35% and living accounts 65%.
Of those 65%, the average age was 62, with 50% having moved away domestically and 12% having moved abroad. The good news for those involved in asset retention is that 15% were still at their address.
The bad news is that getting to use such funds for charitable purposes is more complex than it may look.
