Reconfiguring DC: The pensions dashboard
The Specialist: The pensions dashboard could be the upgrade the industry needs to take it into the digital age, but it is at risk of being just another expensive neglected technology project.
The deadline is set: by 2019, the ‘consumer-friendly digital interface’ promised in the Financial Advice Market Review should be up and running. Championed by former pensions minister Steve Webb, and roundly acknowledged as a good idea, the dashboard has the potential to bring an injection of high-tech solutions to the pension sector.
In theory if it works well and it works, say, like your banking app, it should demystify all that uncertainty around what pensions means
However, beyond its basic concept – to allow people to see all of their pension plans at the same time on one screen – the details of what such an initiative would really mean for defined contribution investment are, as yet, still in development.
Sweden sets a precedent
The Swedish dashboard, Min Pension, has 2.65m registered users – almost half the eligible population of 5.5m.
At an event organised by Royal London discussing pension dashboards around the world, the Swedish Pensions Agency presented data indicating that its high level of engagement in terms of registration corresponds to people feeling better equipped to make decisions when it comes to pension savings.
Of those surveyed who had used the site, 48 per cent felt they had enough information, in comparison with 13 per cent of those who had not used the service.
Steve Webb, director of policy at insurer Royal London, says this shows “quite a significant uplift… as you’d expect and hope”. He highlights an option for users to see a projection for income in retirement from their DC pots, assuming that their contributions continue at the current level.
“The Swedes felt people needed to see income, not capital sums”, says Webb.
Shaun Gomm, commercial director at the UK arm of Sigma, the Swedish IT services company that developed Min Pension, says such user-orientated features are key to the dashboard’s success when it comes to engaging savers.
Gomm says: “It’s essential that we put people at the heart of it.” The Min Pension service uses the concept of ‘life triggers’ to make people think about their pensions much earlier and more often in their lives.
Gomm is sceptical as to whether people in the UK work out the impact of such events on their pensions. “I think the answer’s probably no for the vast majority of people in this country, but in Sweden people are now thinking much more in in terms of their life triggers affecting their financial planning and their pensions planning.”
According to Gomm, it is only in the last three years that take-up of Min Pension has “rocketed”, following Sigma’s decision to redesign the front end of the website from a more user-orientated perspective.
A game changer for members
Lydia Fearn, head of DC and financial wellbeing at consultancy Redington, says a pensions dashboard has the potential to be a huge positive for pension scheme members. She says: “To be able to see it all together and then be able to make decisions where they want to consolidate or not I think will be really beneficial.”
Fearn compares the concept with the use of technology in the banking world, where people are able to check and review their finances easily and regularly.
“In theory if it works well and it works, say, like your banking app, it should demystify all that uncertainty around what pensions means,” she says.
Fragmentation is a growing issue in the aftermath of auto-enrolment implementation. As millions of people are put into workplace pension schemes and move to a different company every few years, tens of millions of small individual pension pots will be created, says Webb.
“Lots of people will end up with lots of little DC pots and won’t really be able to make sense of them – won’t engage with them. If you’re getting five letters from five different pension providers, each with trivial amounts of money in, you’re just not going to get engagement,” says Webb.
The entrance of the dashboard may shake up the inertia that characterises much of the current pensions world. Consolidation could follow hot on the heels of access and engagement, as savers start to think about whether their money is in the right place and seek advice and guidance.
Paul Pettitt, managing director of ecommerce standards and services body Origo, also propounds the huge benefits to consumers of having information in one place.
However, Pettitt is conservative on the pace at which consolidation across the industry might happen. He says he expects transfers between pots will be gradual, because “the dashboard I suspect won’t have everything on it on day one”.
While DC will be the easiest type of pension to feature on a dashboard, with state pension also a priority, Pettitt stresses the time that moving data to the dashboard could take.
“You can only [consolidate] if there’s lots and lots of things to transfer,” says Pettitt, although he adds that the number of transfers might gather pace with critical mass.
Will many lose out?
Webb says the dashboard “clearly will be disruptive, I think more disruptive than people realise”.
Across the industry, DC and defined benefit schemes will have to take on extra costs to supply the necessary information for the platform. In addition, as savers look to consolidate into the scheme they currently save into, companies not writing much new business and closed pension schemes could fall under increasing scrutiny.
“You can understand from the provider’s point of view they want to protect their book and protect the people they’ve got invested with them, but in the same vein we need to move forward,” says Fearn.
Fearn adds that increased scrutiny of charges and investment strategy would put greater pressure on scheme providers – but this would only be in line with a wider drive for efficiency and transparency among independent governance committees, trustees and consultants.
In Sweden, Gomm says, there was resistance to the dashboard. He highlights that the independent financial advice market’s business is grounded on information being complex, and if this is simplified, “half the industry loses… there’s no need for so many advisers and for so many products”.
However, Gomm says that if providers and commercial organisations “play it right, then the dashboard should be in their interests too, because they enhance their brand, they become more open and more transparent, which is what the industry really needs”.
Further to this, Fearn states that having a dashboard in place could actually make consultants’ and financial advisers’ lives easier. She says it would mean less time spent on tracking down lost pensions: having ready access to information on pot size and number would mean more energy could be devoted to encouraging saving and planning for retirement.
With empowerment comes risk
If consumers gain better access to their pensions information and are equipped to compare different products, there would be a risk they might opt for policies that appear better value but lose out on other benefits.
You’ve got to be careful you don’t just have a website with a big golden button on it that says, ‘Consolidate all my pensions'
“You’ve got to be careful you don’t just have a website with a big golden button on it that says, ‘Consolidate all my pensions',” says Webb.
Webb stresses that the final dashboard will need both comprehensive legislation and rigorous security. Consumers will need protection from scammers, as well as commercial providers presenting the data via a user portal designed to manipulate them into a particular decision.
Better education and communication is needed for savers to navigate this information in a world of freedom and choice, Fearn emphasises.
The bigger picture
Ben Cocks, director at Altus Business Systems, says: “I don’t think the pensions dashboard is the utopia that some people seem to be claiming.” He points out that the dashboard alone will not solve the problem of people having small pots, or make people save more.
Ultimately, Cocks says, a dashboard will form “one quite small cog in quite a big machine”, alongside initiatives like the Department for Work and Pensions' online tracing service, upgrading the paper-based transfer system and developing more innovative services from technology providers.
However, Redington’s Fearn cautions against underestimating the impact it could have. Without a pensions dashboard, she says disaffection with the current system “will just continue, and I would imagine savers will look elsewhere” – namely areas where they feel more in control, such as the Lifetime Isa and property.