Now is the time to set aside Pensions Dashboard fears & embrace data availability as new consumer right
28 January 2016
Adrian Boulding - Retirement
Strategy Director at Dunstan Thomas
In a post-Automatic Enrolment world, the idea that people who have accrued multiple pensions, as a result of moving from employer to employer, should be able to see all their pension pots in one place online sounds helpful. Right? It’s one of those ‘no-brainers’ that’s so obvious that nobody is putting up a succinct argument against this Pensions Dashboard concept thus far.
However, for the dashboard to work the vast majority of pension providers need to back it. So is the business case for making this happen strong for them? On the upside, providers stand to realise cost savings from not having to issue paper-based benefit statements as members will be encouraged to download relevant annual progress updates and projections from the dashboard via the internet.
An intelligent dashboard will even be able to provide instant feedback to providers when a policyholder is looking at their pension, thereby creating a trigger event for deeper engagement. If providers get this right they will build deeper engagement with their customers. They can count on more engaged members being more likely to make larger contributions. For example, they are likely to gain a better understanding of their own risk of not reaching their retirement savings target.
However, on the flip-side, providers fear that any initiative that wakes up dormant customers could result in them consolidating their pension pots into a single account, potentially moving funds away from them. Most likely to benefit from the consolidated monies is the one account the consumer can’t close, namely the pension that their current employer is paying into.
So if consumers regard all pensions as much of a muchness, as a lots of people do, then the earlier pension plans are at risk of being swept up into the current ones. A Pensions Dashboard arguably poses a real risk for back books and some providers are concerned. Some senior managers ask me with furrowed brows: “Will people be able to just drag and drop their legacy pension pots via their tablet or smart phone?”
However, it’s the strength of the consumer benefits that means this project cannot be kicked into the long grass. The attraction for consumers won’t just be in viewing their pension in one place online. Benefits will also flow through the use of new online toolsets designed to help consumers make sound financial choices whilst on the dashboard. Only by using these online tools can retirement savings planning come to life to a level where the consumer is stimulated to set their financial goals and plot a path towards them.
I can see three broad age groups, and three quite different sets of tools that will be needed:
At younger ages, savers just want to conform. The principle of hyperbolic discounting means that for those for whom retirement is many decades away, the lure of being on target for a particular retirement income outcome (such as being able to afford to run a car or have a holiday in retirement) is very low compared to other events that are closer, like starting a family and buying a house.
What the tools need to show is whether the young savers contributions and pot size are typical of their generation and peer group. The social norming behaviours that lie behind Amazon's ‘people like you’ and TripAdvisor’s reviews and ratings system can also sit on the dashboard and drive pension saving.
Auto-enrolment is using inertia to get young people in, while the Pensions Dashboard should provide them with the reassurance that they are in the same sort of place as their peers, and provide them with guidance on how much more they need to pay in if they are missing target.
In the middle years, it starts to become key to know whether you are on target for your desired outcome. This in turn means you need to know what your desired outcome actually is! So as well as the sort of projections we are all familiar with from SMPI, the dashboard will need to offer tools to help customers determine just how large a pension they will need to support the standard of living they regard as either essential or desirable in retirement.
During these middle years, the main corrective action for people who are not on target is to increase contributions. With 10-20 years to go until retirement, there is still time to save a worthwhile amount of extra money. The dashboard must offer tools to help with Annual Allowance and Lifetime Allowance planning, particularly if these allowances carry on getting reduced by successive chancellors!
Finally, the later years will be more about retirement planning than about increasing saving. The key questions become: ‘How soon can I afford to retire?’ and ‘How many more years do I need to work for before I can retire?’ Dashboard tools should allow for the exploration of various retirement income products, and complement the PensionWise service which these older consumers may be accessing at this stage.
This brings us back full circle to whether pension providers will engage with what will probably be a number of pensions dashboards. I’m confident that the more enlightened providers will ‘get it’ and be prepared to work together to make this concept, of providing consumers with their data in a useable and helpful format, a reality.
Once some players are on the dashboard, others will want to join. Consumers will be able to enter data manually where any of their older accounts aren’t linked, but they will soon see that as a source of annoyance. As momentum builds, putting members’ data on a dashboard will cease to be the perceived threat for back book providers that it is today. Quite the reverse, the real threat longer-term will be their absence from dominant dashboards as this will prompt consumers to move their pots away from the laggards.
But if I’m wrong, and significant chunks of the industry frustrate progress and deny consumers access to what is after all their own data, then Government will have to intervene. The Enterprise Act 2013 already gives the Department for Business, Innovation & Skills powers to compel companies to give consumers their own data in a useable electronic form. This law was introduced in support of the Government’s ‘midata’ programme designed to improve market efficiencies and has already been deployed against energy companies. So let’s make Pensions Dashboard happen now, rather than waiting for government to force our hand.
Adrian Boulding is Retirement Strategy Director at Dunstan Thomas. Dunstan Thomas is talking to providers to help them define data migration and illustration tool requirements to make Pensions Dashboard a success.