Delayed dashboard the answer to UK’s small pots problem

Nearly 10m more people are saving into a pension since AE’s introduction in 2012. Some of these people will be on low salaries or working part-time, and making the minimum auto-enrolment pension contributions, sometimes for short periods of time as they move from job to job.

Aegon research earlier this year found that 64 per cent of people in the UK have multiple pension pots, and 22 per cent of those with multiple pensions have lost track of one or all of their pots.

Without compulsion the pensions dashboard risks being half-baked

Many of these pension pots are tiny and easy to forget. It is notoriously difficult for people to keep track of small pension pots, particularly those from the beginning of their working life when pensions were perhaps not at the front of people’s minds.  

Additionally, recent research from the Association of British Insurers indicated there could be as many as 1.6m lost pension pots.

Connecting people with small pension pots can take a lot of time and effort for schemes, as unfortunately many people fail to keep in touch with their pensions.

While each of these pots might be small, they still matter. Every penny counts when it comes to retirement savings.

Dashboard most obvious solution

In the last decade we have seen several policy solutions floated to try to address the growing small pension pots issue, including pot-follows-member, cashing-in small pots and provider-follows-member. Each solution has its own set of challenges.

Since 2016, all hopes have been pinned on the pensions dashboard as the solution where people can see all their pensions online in one place – and hopefully never lose track of them again.

Saving for retirement needs to be made as simple as possible, but so does keeping track of multiple pensions.

If people were able to see all their pensions online in one place, they would be able to see how much they have saved, and hopefully this would help them feel greater ownership of their pensions, leading to more engagement.

Adding online tools helps people work out how much more they need to save and when they can afford to retire.

The pensions dashboard is likely to lead to greater consolidation of small pension pots. This can be a good thing not only for members but also for pension providers and schemes, reducing the administrative burden of managing small pension pots for years to come.

The challenge will be to make the pension transfer process quicker, and simpler, but without the risk of people unintentionally losing valuable benefits, or becoming victims of scams. Advice could play a vital role in this for some people.     

Success hinges on compulsion

For the pensions dashboard to be successful, it needs to give people a complete picture of their pension savings. This includes all defined contribution and defined benefit pensions, both private and public sector schemes, trust-based or contract-based, auto-enrolment and legacy schemes.

And as the state pension continues to be the bedrock of retirement planning for many UK’s savers, it needs to be included on the dashboard from the start.

The reality is that many schemes, including small DB and DC schemes, legacy schemes and public sector schemes, are unlikely to share their data with pensions dashboards unless compelled to do so by legislation.  

Without compulsion the pensions dashboard risks being half-baked. We are waiting with bated breath for the government to publish its much delayed feasibility study.

This is key to the industry being able to move forward with developing the dashboard initiative. If this does not happen soon we will lose another year.

Kate Smith is head of pensions at Aegon