Thoughts of many in the industry will be on the ABI this week as it unveils the prototype of the pensions dashboard, the first genuine effort by the industry to create a system that allows people to see their pensions all in one place. Although the finished version of the dashboard is not expected until 2019, this will be a good indicator of the shape the project will take.
While the initiative has been widely applauded, certain aspects of the project have not been without their critics. For instance, some have concerns that the £50,000 fee for a seat at the table is excessive and others worry that the creation of a dashboard simply detracts from other more pressing challenges facing the pension issue. For others still, rather than being limited to pensions, there is a need to include a broader range of savings products.
Of course, a period of consultation is expected and numerous presentations are set to take place across the industry. This will be essential to shaping a comprehensive tool that is not just going to make pensions simpler but also make ordinary consumers more engaged. So what would the perfect dashboard look like? We spoke to a number of leading experts in the pensions industry on what, in their opinion, should be included and whether anything should be further considered to create a dashboard that works for everyone.
“Opportunity to engage”
As a rule, experts are optimistic about the impact the dashboard could have on the industry, provided steps are taken to maximise functionality.
For Natanje Holt, Retirement Expert at Bravura Solutions, the dashboard could transform the way the industry and consumers interact.
“It gives the industry the opportunity to engage with a customer in a personalised way based on their own financial situation. That means specific information and nudges can be provided to the individual. The information will be more relevant to the person’s circumstances.”
Graham Peacock, Managing Director of Salvus Master Trust, hopes it could also further boost engagement among scheme members from its current low levels.
“Auto-enrolment has dictated to employees how this will roll out and so few have taken any interest. As people move from job to job, many have lost contact with their pension scheme and if they can see the value all in one place then this should start to see engagement follow through the ownership. I hope the dashboard will give some ownership of pension pots back to the member.”
Charlie Goodman, Employee Benefits Consultant at Mattioli Woods, believes the technology involved could improve efficiencies. “It will help save financial advisers and consumers time getting this data together when they’re retirement planning, which may bring fees down a bit,” he says.
“It could restore some trust if it works,” he continues, “and lead to better member outcomes if presented well and with clear jargon free descriptions. However, I also fear if there are system issues it could further undermine public perceptions.”
“Transparency could drive further competition”, adds Gregg McClymont, Head of Retirement at Aberdeen Asset Management.
With both the pensions industry and technology advancing at a fast pace, there will inevitably be areas that could hold the development back.
Compatibility with legacy systems are a concern for many, including Jinesh Patel, Vice President of DC Consulting at Redington.
“Not being able to provide information on all of an individual’s accrued pension saving could be a significant limitation. Will legacy providers with closed books of business participate in the dashboard? I hope so.”
“Old information on individuals not taking into account name changes and address changes could present a problem. Also, some individuals might not be aware of which pension plans they’re actually missing, so would be unable to confirm if a pension plan is missing from their dashboards.”
McClymont thinks the issue goes deeper than that. For him, the fragmentation of the industry could pose a significant threat to the success of the project.
“The UK pension landscape is fragmented both in terms of multiple individual pension pots and in terms of the vast number of pension schemes both legacy and open to new business. In Sweden and Denmark where dashboards function well, the starting point was an already more cohesive system with economies of scale on the provider side.”
Holt agrees, believing that the success of the project depends on participation from all stakeholders, including the government.
“All pension providers, including the public sector and government will need to participate and make the data available, whether it is achieved through legislation, or on a voluntary basis. The general view is that the voluntary approach will take too long and would be met with some level of resistance, which will require some level of enforcement.”
Patel also believes slick functionality is essential. For him, a clunky system could turn users off.
“A major limitation could also be the inability for individuals to log on quickly and securely as most may give up and lose faith in the system should logging in appear too clunky and onerous.”
Peacock, however, is less optimistic about the project.
“I suspect the dashboard will fall short of the essential element…that is the “golden button” to consolidate all pensions into current scheme. Pot follows member was kicked into the long grass after Steve Webb’s departure and the non-advised consolidation function is essential in my view.”
What else should be included?
In addition to these concerns, experts believe that the concept could be taken even further.
Several are keen for developers to exploit the possibilities that technology and improved data capture can offer.
According to Holt: “Built correctly, the dashboard could be a powerful tool that enables savers to really take responsibility for their savings in a way that hasn’t been possible before. It could give users the opportunity to fully engage with the myriad of real-time data available. While a static breakdown of how much you have saved towards retirement is useful, an interactive dashboard could offer real insight, for example, into how well individual stocks are performing within a pension fund, and how they are forecast to do over set periods of time.”
Goodman is also hopeful that the dashboard will have forecasting capability.
“I would like it to provide an indication of pension saving against the lifetime allowance. I would like it to be able to project potential annuity and drawdown income based on assumptions that could be easily varied by the consumer.”
For Peacock, inclusion of the state pension on the dashboard is a must.
“I cannot understand why the state pension is not included on the dashboard. It is set to form a large part of many individuals’ retirement income and therefore its inclusion should be a priority. Without it, the whole project is arguably meaningless: people are not going to want to engage if they can’t see the full picture,” he says.
Generalised savings aggregator
The introduction of ‘pensions-lite’ schemes such as the Lifetime ISA and the success of other forms of ISAs mean more people are now saving for retirement through a variety of products. The dashboard needs to reflect this evolution, say the experts.
As McClymont puts it: “As the distinctions fall away between saving and investing, and between retirement and long term saving, it makes sense for it to encompass all forms of such wealth.”
Goodman would like to see an all-in approach: “I think ultimately it would be far better to have a general savings aggregator. I’m not sure why we’re only going ‘halfway’ on this, and I hope some entrepreneurs look to use this as a springboard to offering this capability.”
“For some individuals, property too can form an important part of their financial plans for retirement”, Holt adds. “These should all be incorporated into any dashboard worth its salt, as of course, should the state pension”.
While Peacock sees the necessity of a move towards a general savings aggregator, especially given the number of jobs individuals can now hold in a lifetime, he doesn’t hold out much hope, citing previous attempts that never came to fruition.
“I don’t see products that are available via a choice process such as LISA coming into the dashboard. I realise that Nest wanted to do just that but industry objections has put that on hold for now. Registered pension schemes can only transfer to other registered pension schemes. LISA is not a pension despite appearances.”
Patel, on the other hand, feels introducing too much too soon could be counter-productive, especially when it comes to driving engagement.
“In the longer term, you could see how other long term savings products could be included on the dashboard. For now, let’s just make sure the pensions data is complete, accurate and available to individuals. The last thing we’d want to do is overload individuals with information and confuse them further.”
Who should pay?
The £50,000 fee paid by some providers has proved a contentious issue. Some smaller operators in the space clearly feel shut out of decision-making, while others have taken the view that those who can pay should.
Experts believe it is vital for the Government to have more of an active role, although Holt acknowledges the difficulty of making this happen.
“It is very difficult to imagine a scenario where the government would participate financially to the pension dashboard,” she says.” They have made it clear that they expect the industry to create this. The project will no doubt evolve and expand and it is an opportunity for the industry to work together to create something that would benefit the majority of pension savers.
“I would certainly be more worried about a lack of government commitment to make this work as I am sure the goodwill and budgets of the organisations that have participated to date will have their limits and it would be a great shame to lose the momentum that has been generated to date.”
“In order for this to work and be of real benefit to individuals, it requires all providers to be involved and not just those that are willing to pay the participation fee. Therefore, in an ideal world I’d like to see the government step in and make involvement in the dashboard mandatary for all providers and be willing to subsidise any reasonable costs incurred. However, in reality we know this is unlikely in particular for those providers whose are operating legacy administration systems.”
Peacock worries that without inclusivity, innovation could be hindered.
“Certain smaller providers should be invited to join the working party. The innovation in pension provision has not come from the insurance companies; it came from start-ups, especially fintech market disruptors. The risk here is that the big insurers use this project to make the dashboard work for them and not the consumer.”
With a number of tech providers involved in the project, what do the experts think could be potential stumbling blocks?
Once again, legacy systems rear their heads.
“The biggest challenge will probably be to get current valuation information and data from older legacy systems and DB systems where the information may not be current or be in easily consumable formats,” says Holt. “Clearly each party will face some challenges, from making sure the data is secure and comply with data regulations, to ensuring good user experience testing has been performed and a clear aim of the expected outcome for different users has been established.”
For Peacock, the sheer number of schemes in the UK could present a challenge.
“It’s the volume of separate schemes. Dashboard could easily become something only available to certain groups and not for all.”
According to Patel, “The single biggest practical challenge is likely to be obtaining pension scheme information from all of the pension providers (this includes accrued defined benefit pensions). The other more subjective challenge is how this information is portrayed to individuals. We know most individuals are not engaged with pensions and find the topic somewhat confusing. Ensuring the data is easy to understand and meaningful is the most critical challenge.”
The pensions industry is not without its issues, not least lack of saving and high deficits in DB schemes. Could the energy expended on developing the dashboard have been put to better use?
Goodman thinks so.
“Rather than prescribe the dashboard, I believe the government should have focused on making the provider data far more accessible to developers and pushed for common standards. Alternatively the government should have focused on either pot follows member or allowing individuals to choose their own workplace pension account rather than employers.”
For Patel though, the dashboard project offers a real opportunity to boost engagement.
“I’d like the industry to really grab this opportunity to dial up meaningful engagement and help members make more informed and smarter decisions. Governance standards in DC are relatively good with the introduction of the DC Code of practice for trust based schemes and Independent governance Committees (IGCs) in workplace contract based schemes. I’d like to think fiduciaries will actually raise their governance standards and put in place controls and processes for individuals to use their data wisely and make better decisions, whilst keeping the predators that are the pension scammers at bay.”
“There is no coherent long term strategy for saving for later life. The dashboard is not distracting from this lack of long term strategy. Engagement will be driven by the dashboard if it is inclusive and available to the vast majority of pension scheme members. Governance standards are being driven higher and higher and the Pension Bill itself seeks new powers for TPR and an authorisation and supervision regime should result.”
But McClymont warns: “These issues should be tackled in unison – there is a danger of seeing the dashboard as a panacea.”