Pension dashboard progression
01 February 2019
This article was featured in the February 2019 issue of the magazine.
Henry Tapper, director of First Actuarial, discusses developments
The idea of a single place to see all your pension pots is generally appealing. When I published a do-it-yourself dashboard in the Sun in August, it proved one of their most popular articles of the year.
Eight months late, the Department for Work and Pensions (DWP) published its feasibility study on a pensions dashboard to sighs of relief from the pension industry. The dashboard is primarily meant as a way for those who don’t have the resources to employ a financial adviser, to understand their pension situation and plan for retirement. The government’s plan for the dashboard, however, is initially not that ambitious.
A few large pensions schemes will make information on member benefits available to the Single Financial Guidance Body (SFGB) at the member’s request. (The SFGB is a government-funded organisation comprising Pension Wise, The Pensions Advisory Service and the Money Advice Service.) Such requests will be authenticated by a pension finder service (PFS) which in time will be used to trace lost money. Subsequently, the pension will appear in a dashboard managed by the SFGB. As the Pension Policy Institute estimates that we have £20bn in lost pensions savings, the PFS is likely to become the most important part of the dashboard ecosystem.
The principal innovation that is likely to make dashboards work is the application program interface (API) which is taking over from file transfer in the running of auto-enrolment. The government wants all pension providers – including the administrators of company pensions – to adopt an API so that the PFS can access data without manual intervention.
...PFS is likely to become the most important part of the dashboard ecosystem
Once API coverage has reached a certain level, the government intend to make offering straight-through access to pensions data a compulsory feature of pension administration systems. There is, however, much concern among those who run legacy pension systems that data will not be clean and pension requests could give false information. The government has said it will give providers some years to get data ready, but clearly the DWP has limited tolerance for bad practice.
There are issues to be decided. Most of the debate over the dashboard is between traditionalists (e.g. insurers) that want to see a centralised service with strong governance, a single dashboard and just one pension finder service, and ‘fintechs’ (e.g. modern master trusts) that would like to see multiple PFSs, multiple dashboards and less prescriptive governance.
The implications for payroll are unlikely to be dramatic. Although, in the short-term, the single dashboard is unlikely to radically increase people’s interest in pensions, it’s likely that people will be able to pay a lot more attention to their pension, especially their workplace pension, as API coverage becomes universal.
Though, so far, member queries to payroll and personnel departments from the 10,000,000 new savers brought to pensions by auto-enrolment, have been few and far between, the dashboard is likely to change that.
Pension providers anticipate that when people see a number of different pots, demand to bring small pots into one big pot (aggregation) will increase.
There is likely to be interest, too, in the likely outcome of all this pension saving. The workplace pension providers hope that the dashboard will encourage people to merge their little pots into bigger pots which are more profitable to administer. Scheme providers hope that as people think about the amount they need when they grow old, they will want to pay non-statutory contributions (i.e. additional voluntary contributions).
But who will give guidance to staff on procedures to follow, and what will be the increased strain on payroll from the extra pension administration? Regular readers will know that I have been predicting an increase in pension engagement simply from an increase in account balances. Behavioural scientists tell us that people get interested when a pension pot becomes more valuable than their car and really interested when it becomes greater than their mortgage!
The boost from a pensions dashboard is likely to keep the topic of pensions high on the list of staff priorities. While the likelihood that employers will be running pension dashboards for their staff is slim (at least anytime soon), employers should follow the progress of their workplace pension provider to becoming dashboard ready. It looks likely that ‘dashboard-readiness’ will be a good measure of how well the workplace pension is being managed and governed.
If you want to know more about the government’s plans for its dashboard, then you haven’t long to wait. The consultation closes at the end of January and we can expect a decision on whether the dashboard is to be legislated on in this year’s Queen’s Speech. All going to plan, the dashboard will be introduced to the statute book as part of a Pensions Bill announced by the Queen in the summer.