‘I’m late! I’m late! For a very important date!’
…but unlike the White Rabbit, we aren’t worried about that.
The upcoming introduction of the pensions dashboard continues to cause both excitement and commotion and if it’s a bit ‘late’ following the recent announcement to ‘reset’ the rollout of the programme then surely that’s a good thing to get it right. What’s more important, is the potential impact of the dashboard as a whole.
So when the dashboard finally makes an appearance, the new online technology, or at least the combining of existing online technologies into a single platform, will inevitably lead to a number of changes for both industry professionals and members of pension schemes.
An obvious advantage of the dashboard will be that a member’s knowledge and understanding of their pension arrangements will increase thanks to all their pension benefits being viewable in one easy-to-find location. As the average UK employee will have benefits in many pension schemes, an individual is more likely to sign up and review a single combined pension portal than multiple portals. Many pension schemes have not previously facilitated online portal access for their membership, either due to cost or technological complexities, so the requirement for these benefits to be viewable on the dashboard will surely lead to improved membership interaction.
Already of significant importance to the pensions industry is the potential improvement the dashboard could have on record keeping. At the very least, being able to view all pension schemes in a single location will remind people to inform all their pension providers with updated personal details. There is also the potential that, with changing technology and greater integration in the future, the dashboard may be a mechanism through which pension scheme members can update all of their pension providers at once.
Increased member understanding around the effect of contributing more into a workplace pension rather than a private pension can only be a positive. Helping them understand the effect of higher employer contributions to match their own and National Insurance contributions uplift will hopefully improve the financial health of members and take pressure off the UK Government to provide benefits for low-income pensioners.
Technological improvements and integration may bring further benefits, such as members being able to align their investment strategies across all schemes or arranging pension pot consolidation via a single point of contact. Advisers may also be able to view their client’s dashboard, making giving regulated advice easier.
But there will be pitfalls – nothing ever comes for free! All the improvements listed above come at a cost (and perhaps a significant cost) to scheme administrators, some of which may not be able to meet this new burden. This could lead to smaller firms not being able to establish themselves in the future and the possibility of some existing companies being forced to leave the market. And less competition for third party administration could lead to worse member outcomes and greater dissatisfaction as larger firms face less competition for the services they provide (and thus less pressure to improve them). Trustees will also be liable for the information they provide (or fail to provide) to the dashboard. An increase in liability could lead to future higher trustee indemnity insurance premiums. It could also dissuade potential future trustees from seeking the position, leading to a decrease in the available trustee ‘talent pool’.
In a world where GDPR encourages increased member security and privacy (at the threat of massive fines for breaches), an initiative such as the dashboard, which necessitates the sharing of large amounts of information between multiple parties, could cause potential problems. Information being shared among the parties involved in the dashboard could lead to data breaches, as any weak spot in the new system could be exploited by hackers and scammers. There is also the potential for human error causing breaches.
And finally there’s the quality and consistency of the information being provided to the dashboard. As every pension scheme will eventually need to be included, this will involve many different pension providers supplying information for projections to show benefits at a member’s retirement age. If for example one provider bases their projections on standard SMPI assumptions and another provider uses a different set of assumptions, the information that members see will be inconsistent. This could lead to negative outcomes in the future, as assumptions that cause projections to be artificially too high could encourage lower pension savings.
The pensions dashboard could dramatically change the pensions industry, for good and for bad. The true outcome might not be known for many years and may never be fully appreciated. However, only time will tell.
James Turner, Senior Pensions Administrator at Quantum Advisory