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Ian McKenna: The Govt data scheme that could shake up pensions switching

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We are used to reading about information being obtained under the Freedom of Information Act. 

The industry may be less aware that the Government has been quietly working to impose a similar structure to give consumers access to extensive personal data from a wide range of businesses, including financial services providers.

Originally a voluntary exercise as part of the Government’s midata initiative, this was backed up with legislation in the Enterprise and Regulatory Reform Act 2013 to provide powers to compel certain businesses to ensure that: “Data that is released to customers will be in reusable, machine-readable form in an open standard format.”

Although the legislation has to date targeted only energy suppliers and providers of mobile phones, current accounts and credit cards, the Government now has powers to introduce codes of conduct for other industries, requiring them to disclose extensive consumer data. Given the DWP’s interest in giving consumers greater access to information on their pension savings, it is not difficult to see these powers being extended to cover life assurance, pensions and investment management groups.

Probably the most high-profile example of midata in action is the recently launched current account switch service. In a politician’s mind, there is probably not much difference between a service which enables people to switch banks easily and a similar arrangement for changing pension providers.

Advisers will be quick to point out that switching pension provider should be a far more considered transaction than moving bank accounts. However, the midata initiative could represent an opportunity to remove many of the most time-consuming elements of giving pension advice, such as getting accurate information from the current provider. 

An interesting development in the midata scheme is a proposal to compel utility companies to provide all the relevant data for a consumer to assess switching energy supplier in the form of a QR code included on paper documents sent to customers. This would enable smartphone users to simply scan in the data to populate comparison services. Why not add a similar capability to annual pension statements?

If the Government requires financial services providers to make the information that consumers need more accessible, this should provide a major opportunity for advisers. But they will need a cost-effective way to obtain the data needed to give correct advice.

Information provided by legacy pension providers is notoriously inconsistent. If there is the prospect of the Government extending midata to the investment sector, advisers must make clear the full range of information needed.

Historically, obtaining such detail has been a painful process but the Government now has the powers to make long-term savings and investment firms provide all relevant information to savers in an electronic format, which they in turn can easily pass to their advisers.

A potential extension of the Enterprise and Regulatory Reform Act to include long-term saving suppliers represents a huge opportunity to greatly reduce the cost of providing advice. In so doing, however, we must make clear to the Government the need to extend the detail required by advisers to give advice in a fully compliant way.

The midata initiative could not only catalyse pension switching but also speed up progress on platform-to-platform re-registration. Many fund management groups have been poor at putting in place services to facilitate electronic delivery of information to consumers. They  should address this before it becomes a legal requirement.

The Government has not yet announced an extension of the midata project to cover savings and investment products but the logic of doing so is clear. I would be pleased to hear from any advice firms interested in collaborating to create the necessary information to share with ministers.

Ian McKenna is director of the Finance & Technology Research Centre

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Great to see Ian highlighting the opportunities midata has the potential to unleash. This is one government initiative, passing pretty much under the radar, that really could change all our lives immeasurably for the better both for individuals and businesses. Whilst it’s not about financial services, our industry does indeed stand to be one of the most obvious beneficiaries, should we grasp the opportunity.

    From a citizens’ perspective, the radical thing about midata is its drive to put us back in charge of our own data ….actually getting our hands on it to use as we wish once app builders give us the tools to make that meaningful. It maybe doesn’t sound that exciting until you realise how much easier and convenient running various aspects of lives will become. Less frustration, more control. You’ve heard of CRM systems, business-side – the organising of customer data so as to more efficiently manage the business’s customer relationships. Midata proposes to enable the converse: vendor relationship management, they’re calling it in the States.

    So going back to the pensions context, I’m looking forward to being able to have all my pension providers feed my own pension records into my own personal data store, where I’ll be able to get a holistic view of what I’ve got where. Even better when I’ll be able to plug that into my own or my adviser’s planning tools to see what I need to do next.

    Or operate transactions such as fund switches or transfers without first navigating the (vagaries of the) provider’s own portal.

    Ditto, my investment accounts. (Gave up manually trying to update portfolio apps ages ago, and ended up having to put most of my dealings through just one provider.) Plus, then there’ll be a handy CGT calculator I’ll be able to plug in and get my non-ISA stuff sorted with HMRC in a matter of moments. Bliss.

    But it’s not all a one way street benefitting only consumers. In my optimistic view of the future…..

    • Advisors will be able to spend less time on the leg -work of trying to extract the info they need from clients and then processing it, and more time on advising!

    • The identity assurance annoyance for everyone in the process for signing up new financial products will be much reduced if and when the DWP enable applicants to give computer access permissions to their national insurance record. Sales of ISAs or pensions need no longer drop out of the new business pipeline just for the lack of an NI number.

    • The pot follows member problem with auto-enrolment becomes solvable at much reduced expense to the industry, and much improved customer experience.

    • Advisors, insurers, doctors and life insurance applicants will all find life easier getting protection policies in place once underwriting approaches adapt to being able to have applications checked against the applicant’s NHS records automatically and in real time.

    • Insurers will be able to have automated death registry notifications when an annuitant or other policyholder dies. The industry could save millions of pounds on annuity overpayments without causing distress if they get it right. For life cover, they get to be customer service heroes compared to the current perception in many quarters.

    No it won’t all happen overnight, but it’s well underway, and the sooner insurers get involved to make their side of the equation work the sooner it will get done.

    Sorry this became more of a follow up article than a comment, Ian, but you’ll gather I think you’re onto something!

  2. The information about the Enterprise and Regulatory Reform Act 2013 is very interesting. There is already a good measure of total effect of costs in the shape of RIY which has to be provided at the point of sale and has been with us for over 20 years, which covers most legacy plans still in force. But RIY changes as the plan gets older and it would help enormously if RIY was updated in every annual statement. As someone who spends a lot of time getting information for old plans from providers and then calculating a new RIY, I can attest to just how hard this can be, especially from ‘zombie’ companies no longer competing for new business. The FCA guidance on assessing suitability for ‘replacement’ business (FSA FG 12/16) requires advisers to justify any additional cost when recommending that an old plan is replaced. This supposes that due diligence on the old plan has been done to an extent that the RIY can be ascertained and compared with the new plan. The guidance suggests that up to 0.5% extra RIY can often be justified but that it gets difficult beyond that. Difficult reaches impossible at about 1% IMHO. That does create a problem for advisers because, contrary to popular opinion, most legacy plans are now cheap. They may have had high RIY initially but much of that was caused by a front end charging structure. That period is long since over and the remaining ongoing charges, converted to RIY, are now often circa 1% on many old insured investment plans (i.e. bonds and pensions). With new platform based solutions often weighing in at over 2% RIY when all the platform, investment and adviser charges are included, passing the suitability requirement becomes much harder for replacement advice. I’m not sure that many advisers are even aware of FSA FG 12/16. There were four earlier thematic reviews of ‘replacement’ business and in all five cases the fail rate was circa 70%, primarily because there was inadequate (often even nil) evidence of cost comparison between old and new. Has much changed in the two years since the latest publication? My experience suggests not. What is need in the adviser market space is education, due diligence and process and any initiative which encourages those three in relation to advice on legacy plans has my support.

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