Pension dashboard fires up
25 September 2018
This article was featured in the October 2018 issue of the magazine.
Henry Tapper, director of First Actuarial, discusses why many in the industry are fired up about developments
Considering the money that the government has committed to Pensions Wise, many people thought that funding the delivery of a pension dashboard would be a formality.
Pensions Wise continues to be the government’s flagship support service for those approaching retirement, but while it offers guidance, it does not offer the key information employees need when they start winding down. People need to know what they’ve got and what to do with it.
When, in 2016, the then chancellor of the exchequer, George Osborne, promised to facilitate a means for us to see all our pension pots (plus the monthly income from our occupational and state pensions) on one screen, there was universal enthusiasm.
A successful prototype was built, and a tender process decided on the government’s chosen partners to deliver the service. In the autumn of 2017, control of the project was passed to the Department for Work and Pensions (DWP) after the unfortunate Treasury minister sponsoring the project lost his seat in parliament.
The DWP promised a feasibility study by March of this year but month after month has passed and, at the time of writing, the study looks unlikely to be published until the end of September.
Esther McVey, the secretary of state for work and pensions, had been reported in the Times saying “that the service should not be provided by the state and that it would be a distraction from efforts to roll out universal credit”. Despite being accused of “killing off the dashboard”, Mcvey published this statement on Twitter: “It’s clear there is broad support for the concept of a dashboard and its potential to empower those putting money away for their futures. By taking a leading role, and harnessing their knowledge, industry can develop a dashboard that works for pensions holders – and government will help facilitate that.”
By ‘broad support’, she may be referring to the nearly 200,000 people have signed a petition calling for the DWP to deliver to the timetable originally laid out by the chancellor so that a dashboard would be publicly available by the end of 2019. DWP officials remain tight lipped on next steps but it now looks as if the private sector will be held responsible for delivery – and perhaps blamed for non-delivery by April 2019. (I think it’s more likely that government will probably like us to forget their original deadline.)
So, what’s all the fuss about? Despite having a well-organised and well-trained body of financial advisors, only six per cent of us (according to the Financial Conduct Authority) regularly see one. When we do, it is typically to get a mortgage; the numbers taking advice about pensions is surprisingly small.
But each year, around 500,000 of us reach 55, the age we can exercise our pension freedoms. More of us each year will want to stop working relying on private pensions to replace our income. The success of auto-enrolment which has introduced ten million new to workplace pensions, is making retirement saving business as usual.
But because we need to join a new pension each time we change jobs, people now have a portfolio of private pension pots and pension entitlements. The DWP estimate that this will lead to there being fifty million abandoned pension pots by 2050.
...more than a way of valuing your retirement wealth
Before the introduction of pension freedoms in April 2015, the disparate pots would have been ‘aggregated’ by an annuity provider and exchanged for a single ‘wage for life’ income stream.
But pension freedoms have given us the expectation that we can draw down our pension pots as we please. Trying to organise a replacement income from one pot has been described by William Sharpe, a senior economist, as “the nastiest hardest problem in finance”. Trying to organise a retirement income from a variety of pots is considered a near impossibility.
The pension dashboard is more than a way of valuing your retirement wealth. It is hoped it will enable people to compare their options and transfer money to the provider best suited to meet each person’s needs. This of course would require more than a screen, it would need transactional functionality and some kind of rating system to establish which pension to transfer to. One wag has described this as giving the dashboard a steering wheel and engine.
A failure to come up with these financial facilities could have serious consequences for our newly founded pension system. The fear is that employers, central as they are to the new workplace pension system on which auto-enrolment relies, could find themselves as the unwitting fall-guys for the dashboard delivery failure.
Traditionally, pensions have been used as a key part in an employee’s retirement exit strategy, but that was when a pension was paid from a scheme or as an annuity. The prospect of managing income from ‘pension wealth’ is a different kettle of fish.
Will staff look to their employer for help? The question is without an adviser will a dashboard be enough?