The pensions dashboard will do wonders for engagement, but the biggest obstacle will be working out how it is to be paid for says Aon Hewitt senior partner Kevin Wesbroom
Imagine a world in which people have become so engaged with their pensions and long term savings that the following scenarios could come to pass:
Anne receives a paper statement from one of her previous pension providers. She decides to have a look on her phone at her pension plans. The Pensions Dashboard she accesses tells her she has a total of 10 previous plans – at least two of which she had completely forgotten about. She decides to set aside some time to sort out these plans in order to end up with one decent “fatter” pension pot that she can focus her savings efforts on.
Bob keys in his NI number – and a few other details – into his iPad and sees that he has four previous pensions, as well as one from his current employer. He can see his projected retirement income at his State Pension Age of 67, and decides he needs to do something about the rather miserly level of income he will have to live on. At the checkout till, as well as taking some cashback, he tops up his monthly pension contributions.
Carol gets her latest monthly payslip online. She decides to check her total pension from the half a dozen pension arrangements she has accumulated. As well as getting a full list of the plans, she sees her projected pension at a future retirement age. She decides that this is not enough – but since she is already saving as much as she can, she decides to move her projected retirement age back by two years, to give her savings longer to grow, and readjusts the investment life-styling for her DC pensions.
At the moment these might sound like pretty fanciful ideas – but turning them into reality came a step closer last month with the demonstration of a prototype pensions dashboard. This dashboard project – lead by the ABI and supported by 17 initial funders, including Aon, using expertise gained from our own prototype dashboard, has demonstrated that the technological hurdles, which are significant, can be overcome. In outline, a dashboard – and we expect there will be many different types of dashboard, both public and private – will work in the following way.
The individual will confirm their identity, using a sign on process comparable to the government system called verify.gov.uk, which can currently be used to access state pension forecasts, deal with online tax returns etc. The user then has to grant permission to the Dashboard to share their information with multiple pension schemes and pension providers
The dashboard will then make digital enquiries to all of the participating pension schemes and providers, including DWP to obtain a state pension forecast. The individual is then presented – probably within a few seconds – with a single page summarising all of the pension plans under their name that have been located, together with contact details for further information, and projected values for income at a future retirement age.
Building the prototype is an impressive achievement in itself – but much remains to be done before the fully functioning version is launched in 2019, to meet the vision set out by George Osborne in his 2016 Budget. And if ever there was a man who needed a system to keep track of his many pensions – or his many employments – then George would be a great embodiment!
Probably the biggest obstacle to overcome is not a technological challenge, but a governance point. The government will have to make the provision of data compulsory for providers, and work out how to meet this cost, if the dashboards are to be sufficiently comprehensive to reach their full potential.
There is still work to do on defining the common data set that providers will need to return, and a need for some realism in terms of what is achievable over time. It would be nice to think that from day one the dashboard would return full information on each of the member’s pensions, but if you consider just what that would entail you can see it is unrealistic. If schemes are going to have to return details of how their scheme revalues and indexes DB pensions; variations in early and late payment terms; or (heaven forbid!) how they deal with anti-franking – then we can quickly conclude that corners will need to be cut to make the burden of data provision reasonable, while still giving members a credible view of their future income. We will also have to acknowledge that the state of data for many historic pensions will not be ideal.
But for many members with simple DC provision on modern systems, the dashboard will remove one excuse for avoiding doing anything about their future retirement provision.
Of itself, the dashboard unlikely to be enough. Employers and pension providers alike will need to continue to think of engaging ways to get their employees to engage with the future. But the pensions dashboards will be a great kick start in that process.