By way of an early Christmas present to the industry, the Department for Work and Pensions’ long-awaited feasibility study on pension dashboards announced it will have to do most of the development work and cover nearly all the costs.
This is not a surprise. Ever since it emerged that then Secretary of State for Work and Pensions Esther McVey did not think the dashboard should be provided by the state, we knew who would have to take it on.
Reports of its demise were mistaken, however. Not only have some key decisions been made, the study also confirms the government’s support in some crucial areas.
Firstly, it is no longer dashboard, singular. It is officially dashboards, plural. The plan is that, while data will be gathered through a single pension finder service, people will be able to obtain access through a number of separate services hosted by individual pension companies.
One of these will be a non-commercial dashboard hosted by the Single Financial Guidance Body, to be launched ahead of the commercial services.
The feasibility study has determined that adding additional dashboards is likely to increase usage. This is not unreasonable given the widely fragmented nature of private pension provision in the UK. And despite the initial research showing consumers largely preferred the idea of a single dashboard, it would be naïve to expect pension companies would swallow the bulk of the development costs without the opportunity for some clear commercial advantage.
By hosting their own dashboards, providers will be able to improve engagement with their existing customers and create links to planning tools that may lead to further investments.
Secondly, there is the crucial and very welcome confirmation that the government is prepared to legislate for mandatory participation, albeit over a period of time.
Both industry and DWP research shows potential users would strongly prefer to access all their pensions data in one place, without having to search around for it, and that usage in other countries was significantly increased once this had been achieved.
The DWP – stuck between Brexit and a hard place – has come up with a solution that allows voluntary participation from early next year followed by mandatory inclusion for everyone else, neatly putting off the need to legislate until after the EU situation is resolved.
The phased roll out is probably not a bad thing – just imagine what automatic enrolment would have been like if implementation had not been spread out.
However, the obvious result is that the initial volunteers will be the schemes and providers that already have the systems in place to provide data in the format required – in other words, the pensions people are already likely to know about, not the 800,000 lost pots identified by the Pensions Policy Institute.
Nevertheless, it is a start, and the proposed phasing period of three to four years is next to nothing in terms of pension strategy, so long as we manage expectations.
The consultation does suggest smaller micro schemes might be omitted from the legislation on the grounds the majority are executive pensions and SSASs where the members are “less likely to need” a dashboard. However, this would seem to go against the principle of having everything in one place.
Thirdly, we have the welcome confirmation that the state pension will be included on the dashboards. Given that, above all, people want to see all their pensions in one place, not including it would seriously undermine the project.
The state pension is the one retirement plan everyone has in common and for many people provides a very significant proportion of their retirement income. Initial access may be via a separate link but the government will work towards full inclusion, once their required data standards are in place, and will provide funding for the development of the required data links.
Everything else – building the dashboards, creation of an identity checking service, developing the pension finder service and above all else the systems necessary to provide the data either directly to the dashboards or via an integrated service provider – will be paid for by the industry.
The report suggests “there may be an opportunity” to use existing industry levies; however, the prospect of further costs certainly cannot be overlooked.
The government’s contribution will be primarily to act as a project sponsor, and to participate as the provider of state and public sector pensions. Some might feel this leaves industry with all the work and them with all the credit but government sponsorship is an important element. Like it or not, an industry offering would not be trusted in the same way as something that is government backed.
Fiona Tait is technical director at Intelligent Pensions