None of us wants to be short on money later in life. Money isn’t everything, but a good pension does make a big difference to quality of life during retirement.
Unfortunately, most of us don’t like thinking about pensions much, partly because we’re hardwired to value near-term gains and discount future rewards. Plus, if getting people to invest is hard, getting them to do it while contemplating being old and vulnerable is even harder.
Because we try not to think about retirement, most of us aren’t saving enough. Overall, the UK is facing a major savings gap, as workplace direct contributions (DC) savings fall to an all-time low.
And the struggle to close this gap is only made harder by the difficulty in locating the pension pots we already own. By some estimates, as much as £20 billion is lying around in unclaimed pensions.
The government would like all this to change for the better. In the 2018 annual budget report chancellor Philip Hammond had this to say on the matter:
“The government is taking steps to support the launch of pensions dashboards, innovative tools that will for the first time allow an individual to see their pension pots, including their state pension, in one place.”
At a recent event held by the Financial Services Forum, industry experts looked more closely at the pensions dashboard effort. Introducing the broader context that led to the chancellor’s statement, panel chair Peter Elliott, DC propositions manager at Legal & General, recounted the project’s history:
- The dashboard solution was recommended in the 2016 Financial Advice Market Review.
- The Association of British Insurers (ABI) is overseeing the effort, on behalf of the Treasury and the Department of Work and Pensions (DWP).
- The scheduled delivery date is 2019. Since this was pencilled in long before the snap elections, implementation will likely be delayed.
- Twenty pension providers and six fintech firms are supporting the dashboard efforts.
- Crucially, an early prototype has been built and proven to work.
What policymakers think
Matthew Burrell, a policy advisor for retirement and savings policy at the ABI, admits the project has been facing a revolving door problem; four former pensions ministers have held responsibility over the dashboard project since its inception.
Nonetheless, the recent budget’s supportive language reaffirmed the government’s commitment.
Equally important, the pensions dashboard project has been able to achieve a rare, cross-industry consensus. The project has also been endorsed by both government and the opposition, and brought together pensions providers and consumer advocacy group Which?
The ABI has also reached some conclusions on implementation:
- Pension schemes and providers should be compelled to allow consumers to access and share their data (as voluntary action doesn’t yield sufficient progress).
- An impartial body should be in charge of commissioning work on the dashboard and ensuring its upkeep.
- A non-commercial dashboard must be made available.
- A strong regulatory regime is required to protect consumers (akin to the protections around open banking).
- Consumers already have a right to data portability; this project should extend this right to pensions.
Can Fintech solve the problem?
At the heart of the pensions dashboard lies the data challenge of tracking multiple pots per person. With people moving to a new DC scheme every time they change jobs, this task is not getting any easier. How will data-savvy fintech firms contribute to a solution?
Clare Reilly, head of corporate development at PensionBee, outlined the dashboard as a progressive effort:
- Reunite people with lost pension pots.
- Provide all their financial information in one place.
- Drive their engagement with pensions.
The first stage – by far the most complex – is expected to take several years, especially for legacy providers. However, newer schemes are starting off with cleaner data, much of which is already digitised. This, Reilly said, means PensionBee can explore what pensions-engagement could look like.
Notably, rather than having a separate app to manage their pensions, many consumers now want better integration with open banking platforms from other providers (like challenger banks such as Monzo and Atom).
Reilly cited data from the Citizen’s Advice Bureau, showing that most people are paying higher charges by remaining with existing service providers; per household, these loyalty penalties total over £877 a year.
Digital tools on open banking platforms, used to analyse spending and find savings, would enable these savings to be redirected into a pension pot, helping close the contributions gap.
What legacy providers say
Not so fast, advised Gregg McClymont, director of policy and external affairs at BC&E, the provider of The People’s Pensions. Most consumers, he said, simply aren’t interested in their pensions.
Clearly, a decision needs to be made as to what purpose the dashboard will serve, and therefore, what kind of data it should display. Is it designed to be a consolidation vehicle or a register?
McClymont urged that expectations be kept realistic: making pensions data available in full to consumers would be a sufficiently big achievement. The behavioural change should not be the dashboard’s primary objective and serving the public interest must be at the heart of the effort, he said. Consumers have a right to their data, but at the same time, the dashboard needs to be built without generating a mis-selling crisis.
This approach is backed by the Reconnecting People with their Pensions report, a cross-industry research of other countries’ dashboard implementation.
Australia, for example, has had considerable success building its register. There, pension providers must report inactive pots; the Tax Office reunites individuals with their lost pot and redirects it to their updated scheme. At the same time, Australia’s success in building consumer engagement with a dashboard has been limited. Even in Sweden and Denmark – considered to be the most successful in their dashboard efforts – only 50% of the public has registered to use the dashboard.
Perhaps, over time, this too will change. Consumers increasingly expect their providers to make data easily accessible; equally, data-rights regulations (such as GDPR) are pushing suppliers to update their practices. A dashboard will never make it fun to pore over our pensions data. But at least, we’ll no longer think of pensions as an unknown abyss.