Dashboards are coming

Our viewpoint

Dashboards are coming. Despite revised timelines, a Pensions Minister merry-go-round, and a variegated assortment of regulatory initiatives, they are coming. And, boy, do we need them. Lost pensions are a menace that bedevils countless savers, perhaps without their knowledge. The latest research by the Pensions Policy Institute – hot off the metaphorical press – found that the value of lost pensions has risen to £26.6 billion, close to a 40 per cent increase since this research was first carried out in 2018.  

It’s hardly surprising to see such a precipitous uptick in lost pension pots. The labour market in the UK is highly flexible, which is enormously beneficial in many respects; but the consequence for pensions is clear: job moves lead to deferred pension pots, which we know members often lose track of. Life also gets in the way. Engagement with pensions is low and keeping your various pensions providers up-to-date with current address details and other contact information does not loom large in the imagination of most people as they grapple with the hurly burly of everyday life.  

A desperate disease requires a dangerous remedy  

I’m not one to quote dangerous revolutionaries lightly; but such is the scale of the lost pots problem, Guy Fawkes’ invocation of Hippocrates’ famous dictum seemed appropriate. And it is dashboards that hold the solution. An online platform that displays an individual’s pension portfolio in its entirety, including their State Pension entitlement, will have three key benefits – some more immediate than others.  

Firstly, dashboards will help people manage the transition to retirement. How and when people move from working life into the sunlit uplands of retirement is a key question. To answer that question with any certainty about the likely consequences for the standard of living they will be able to enjoy in later life requires a complete understanding of their personal ‘balance sheet’. Clearly, the income side of this balance sheet is only one element, but it is a crucial one. For most people, pensions will form the bulk of their later life income and, by reuniting them with their lost pots, dashboards will provide people with the information they need to make a fully informed judgment about their likely income prospects.  

Secondly, dashboards will enable people to plan more effectively throughout their pension saving journey so they are more likely to achieve the outcome they would like in later life. The disparate nature of information savers currently receive – in the post, through online portals, and via apps – does not lend itself to effective planning. Corralling this information in a single place will allow members to make choices about how much they are putting aside for the future on the basis of comprehensive information about their existing pension savings. This could also have wider consequences. Evidently, a complete picture of savers’ pension holdings will make guidance sessions more effective. Dashboards could even reduce the cost of financial advice over the long-term, by truncating the most expensive part of the process, the ‘fact find’ stage, as dashboards will already have done the heavy lifting.  

Thirdly, and largely as a consequence of the above, dashboards have the potential to improve engagement across the board. There are obvious pros and cons of improving engagement levels, which I will not recap at length here. In my view, the most significant benefit of improved engagement will be to give people a sense of ownership over their pensions and their savings journey, which is sadly lacking at present.  

I know of no reason why the pension pot should ever be forgot  

The challenges posed by dashboards to pension schemes and providers are equally clear. These fall into three main categories in my view: compliance, cost, and unintended consequence.  

Compliance is the immediate challenge and schemes should not underestimate this. The Government has now published its connection timeline – the staged onboarding of schemes into the dashboards’ architecture. The timeline set out is reasonable and proportionate. The main challenge for schemes will be to get their data up to the appropriate standard to ensure that the right information is communicated to the right members, and that they are ready to connect in accordance with their allotted staging window. The main focus for trustees will be on the data they are in control of in-scheme, but they should not forget the other assets they are responsible for (eg AVCs) even if they are not held within the trust.  

Cost is a related challenge schemes will have to manage. Beyond getting data into good shape, schemes will need to decide how they intend to connect to the dashboards’ architecture (eg directly or via an integrated service provider), what processes they need to put in place to govern their chosen connection method and oversee the ongoing suitability of their data, and whether they will need to allocate extra resources to deal with potential member enquiries arising from the increased engagement dashboards could deliver. These issues will entail additional cost for schemes and ensuring appropriate project funding is in place will be essential to success.  

Underlying all of this is the delicate economics of the pensions’ universe. Questions about how the dashboards’ architecture will be funded have been settled for now. The great unintended consequence few have yet wrestled with is the potential impact on the cost of pension provision, which could be materially affected by the operation of dashboards. Automatic enrolment solutions are priced on the assumption that members will remain invested for the long-term. You might say that providers have priced on the power of inertia. However, dashboards are likely to disturb this by promoting pension consolidation. This is an obvious benefit for members, but could be offset by increased pricing amongst providers as the stickiness of assets becomes less pronounced and the aggregate cost of transfers increases.  

Each of these issues is surmountable and, indeed, the pensions industry has an obligation to overcome them, given the potential benefits dashboards hold for member engagement and, ultimately, member outcomes.  

More in the series:

More than a feeling?

Three core principles to good financial health

Investing in DC pension schemes in turbulent times

What good governance means for members 

Employee wellbeing – Why good financial health is a win win

Employee wellbeing – Why good financial health is a win win

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