Calls for retirement estimates to be dropped from first dashboards

The latest progress report from the Pensions Dashboards Programme, published on Wednesday, revealed a four-stage timeline for the implementation of dashboards, now only expected in 2023.

The Money and Pensions Service also published a summary of findings from the PDP’s call for input and a qualitative research report from PwC, which show the industry is concerned with the requirement to provide an estimate of the annual income an individual might receive in retirement, in today’s money terms.

Since one of the design principles for dashboards set out by the Department for Work and Pensions was that they will initially be used only for presentation purposes, the dashboards will not then be able to calculate projected pensions. The responsibility is therefore placed on providers and schemes to supply an ERI for each member.

Putting aside the projection rates and assumptions on the basis that those can be agreed, it’s the system and data integrity issues that will really scare providers here

Matt Dodds, ITM

These calculations will be especially difficult in defined benefit schemes, where for active members prospective annual retirement income will be calculated from their latest annual statement using current earnings. Deferred individuals will see their annual pension at the date of leaving uplifted to include any inflation-proofing that has already been amassed. 

Lack of standards could hinder calculations

The PDP’s call for input, which ran in the summer, received 61 responses from a range of consumer-facing and pensions industry organisations, which identified including ERI data on the dashboard as one of the more challenging aspects of its implementation.

According to the findings from the call for input, “one-third of respondents (22 out of 61) expressed concerns that ERI values are not calculated on comparable or standard bases, and half of these highlighted concerns that a mix of retirement estimates at various ages and on various bases would be very difficult for the individual to understand”.

The lack of standardisation in calculating ERI is itself a challenge. The PwC report noted that many participants have yet to decide upon the best approach to providing ERI information.

“Solutions may either calculate ERI figures on demand or use previously calculated figures from the latest available information,” the report stated.

However, the availability of two different ways of calculating ERI poses potential problems for the comparability of ERI figures, it added. This concern motivated 17 respondents to the call for input who said the dashboards should calculate ERI, given the industry’s inability to produce comparable figures.

Respondents to the PwC report were split on whether ERI should be available via dashboards at the outset. 

While nearly half of the 15 organisations that responded to the PwC research said that ERI was not essential to fulfilling one of the major aims of the dashboards — that being to reconnect individuals with lost pots — others felt “strongly that ERI and/or accrued entitlements should be made available from the outset, as individuals may reasonably expect to see their own benefits straight away”.

“Not being able to do so may put individuals off from using initial pensions dashboards,” it read.

Respondents to the call for input erred in the other direction, however. Many respondents “favoured ERI being in a later phase of rollout, with an initial focus on finding data, allowing time for the industry to standardise, and for data providers to carry out any work required to fill any gaps in their ability to deliver data”.

Progress hampered by data quality, integrity issues

Matt Dodds, director at ITM, agreed that data integrity issues is a key challenge when implementing ERI figures.

He told Pensions Expert: “Putting aside the projection rates and assumptions on the basis that those can be agreed, it’s the system and data integrity issues that will really scare providers here.

“The data needs to all be present and correct, and the providers need absolute confidence in that — there isn’t an opportunity here for a human to double check before the details are issued to members — which is what would have happened if a manual request was received,” he explained.

And even if all the data is correct, ERI “is likely to require a calculation of some description to have happened in most cases”, Mr Dodds continued, adding that often “this calculated value isn’t stored on traditional admin systems — so that in itself is a challenge”.

“Add to that, calculations are often also powered by a separate system, not the one where the data resides. So what sounds at a high-level a relatively simple request, unravels quite quickly when you explore some detailed examples.”

Mr Dodds said he was for pragmatism when it comes to launching dashboards without ERI. “If reasonable coverage can happen with it in good time then it should be compulsory, but let’s not delay delivery significantly if it becomes too complex to realise,” he said.

LCP partner Steve Webb added that there was “no reason” not to get on with data cleansing and correcting “as this is needed for the efficient running of the scheme”.

Data issues behind new delay

Former pensions minister Ros Altmann said the government “now admits that pension data is not in a fit state to be loaded on to a dashboard, and that schemes still need at least two years to prepare”.

“Five years after the dashboard was first promised, and despite many warnings of the data problems, pension providers and regulators have made precious little progress on data accuracy checks or reconciliation requirements. The dashboard project relies fundamentally on correct information being fed in,” she said.

The new timeline proposed by the Money and Pensions Service will see phase one, running from 2020 to 2021, being used for setting up and planning the programme, agreeing the architecture, completing procurement, and agreeing the first version of data standards.

Phase two, from 2021 to 2022, will involve the PDP in developing and testing the programme, before phase three, from 2022 to 2023, begins voluntary onboarding and testing.

Thereafter phase four, from 2023 onwards, will see staged onboarding where schemes and providers will begin to be compelled, by law and by Financial Conduct Authority rules respectively, to connect to the dashboards.