Pension dashboard must not be derailed by technology
When I first started in pensions many years ago we administered DB pension schemes with a set of index cards. Each year the new salary for each member was supplied, written on the card and the individual contribution calculated, totalled and a cheque requested from the employer.
This was the easy bit – if someone left then we had to calculate benefits. Excuse me if I do not talk PUPs, CEPs, GMPs (fully or partially franked) and a whole lot more!
Things have obviously changed since my formative years but for me the white elephant in the room where the pension dashboard is being discussed is technology. More specifically, the reality that much of the financial services industry still operates on outdated systems that will struggle to communicate with the dashboard when it eventually launches.
However, this must not be used as an excuse for the initiative to be delayed or even decommissioned. The 2019 deadline already feels quite generous when you consider common industry standards already exist for delivering pension valuations via various back office systems.
The consumer benefit of a pension dashboard is undeniable. People do not engage enough with their pension savings. Pensions are often viewed as complicated – an issue not helped when people end up with multiple pension pots held with different providers, differing pension regimes and subject to differing limits.
The argument is that having a single place where people can see how much they have saved and what level of income this could provide in retirement, including their state pension provision, should encourage them to engage with their pension savings and take control.
The inclusion and quantification of the state pension should be the starting point. Most people have no idea how much state pension they will receive. The single-tier state pension should help this but the legacy of contracting out and incremental change to State Pension Age (often very poorly communicated) means it will take years before the system truly simplifies. Even then what you receive will depend on your National Insurance record. As a result, many will have no idea what state foundation they are building their retirement on.
Perhaps I am seeing castles in the air but this is, after all, a Government-led initiative – if the state pension can’t be integrated into its own project we all might as well go home now.
So, state pension done, the next challenge will be integrating back-office systems across the sector. You’d expect any modern platform to be able to easily link into the pension dashboard, while personal and workplace schemes run by the major product providers are also unlikely to be an issue as these are used to providing valuations to third party systems. It will be that large chunk of legacy business out there, still administered on very old technology, that will be harder to include.
Closed book consolidators may have very little commercial incentive to fund the development necessary to communicate with the pension dashboard, but it will be important not to give them an opt-out - as per pension freedoms legislation.
The dashboard must also be proactive, offering ‘what if’ scenarios so that users can take their savings base and work out how much they need to aim for and the best way to do it. This must be done in a way that is attractive to the target audience.
Done properly, the pension dashboard could finally be the catalyst that makes it easier for people to take personal responsibility for their retirement income provision.
We might have one big chance at this, as a failure in the public domain is unlikely to go down well with the target audience and could undermine confidence at the first hurdle.
Success will be judged as overcoming the legacy issues and empowering people to take their financial futures into their own hands.