IBM must be careful not to over promise and under deliver with its citizens’ pension portal proposal says Ian McKenna, director, F&TRC
In recent weeks IBM have been promoting the concept of a citizens pension portal. Whilst I can see significant potential benefits in such a portal, this is not a new idea. I believe there are major questions to which the industry must demand answers quickly, before supporting such an initiative. Based on previous experience there is a serious risk of setting unrealistic expectations in Westminster, which could turn into just the sort of PR disaster the industry can ill afford right now.
When this was attempted previously, those promoting the portal stimulated strong interest from government, but vastly oversimplified both the complexity of the task and the time it would take to deliver. When the initiative floundered, it looked like the pension community had, through self- interest, resisted an initiative that might have had real benefits for citizens. The reality was those promoting the scheme did not sufficiently understand the complexities of what they were advocating, but it was the pensions industry that was portrayed in a poor light.
From much of the commentary so far I am concerned that this initiative is going down the same path. Achieving a situation where any consumer could have access to a summary of all their pension entitlements from any source will require a vast amount of cooperation. Any comprehensive solution would need closed book life offices, who represent a large percentage of the in force book, to make major investment in what generally are very dated legacy systems.
One industry technology expert with extensive knowledge of such issues has expressed to me severe reservations over the costs that would be involved in enabling such legacy systems to communicate with a portal. The closed book provider community would probably need a lot of persuading to support such an initiative as it would doubtless make it far easier for IFAs to recognise where opportunities exist to switch such investments away from those providers.
IBM has talked of the relative low cost of providing such a portal, citing a cost of 54c per member in the Dutch equivalent in 2011. When you are talking about tens of millions of policyholders that still adds up to a lot of money. Given the vast millions IBM earn from the pension industry, if the cost are so negligible, perhaps they would like to absorb them as a way of supporting their customers and UK citizens.
There are many other services emerging which will provide consumers with the ability, free of charge, to access an aggregate view of their savings. These would include not just pensions savings but the full range of their personal finances. At this time I am not convinced of the case for a single solution from one technology supplier when a range of competing services could offer the same thing without the need for a levy as it appears IBM are suggesting.
The idea of making details of all a consumer’s pension readily accessible online has huge benefits and deserves enthusiastic support, but at this time I am far from persuaded by the approach IBM are putting forward. It would certainly be sensible for government or regulators to come up with an obligation for all pension providers, regardless of the sector they come from, to make consumer information available in a consistent digital format. This should apply equally to DC and DB schemes as well as state benefits.
Regulatory action requiring any organisation providing pensions to provide free and transparent access to information for all policyholders in digital formats would probably achieve much if not all of what IBM are advocating, without the need to build a single service run by one technology supplier. I have repeatedly advocated such an approach over many years. Many of the necessary data standards already exist via organisations like Origo and whilst they would doubtless need to be extended, it would be better to fully investigate how existing assets can be re-used rather than starting a new initiative.
It would certainly be valuable for the industry to conduct a detailed assessment of what would be necessary to achieve such open access across the market. With IBM having stimulated an appetite in government for such a service, a proper assessment should be carried out into how this might be achieved in order to avoid future problems as a result of unrealistic expectation being set. It might have been better if IBM had done this before talking to government. Now they have it is essential to properly identify the complexity of this issue and how best to enable citizens to get the information they need.