Introduction

The coming introduction of the pensions dashboard has caused both excitement and commotion throughout the pension industry. The new online technology, or at least the combing 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. Some will be good, some will be bad but all will have an effect on how pension schemes interact with their memberships and vice versa.

Advantages of the dashboard

Perhaps an obvious advantage of the dashboard will be that people’s knowledge and understanding of their own pension arrangements will potentially increase thanks to all of their pension benefits being viewable in one easy to find location. As the average UK employee will have benefits in many pension schemes when they reach retirement, 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 the technological complexities of providing such a service), so the requirement for these benefits to be viewable on the dashboard will surely lead to improved membership interaction, especially as technology become even more entwined in our everyday lives.

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 pension providers with which they have benefits to update their personal details (for example when they change address) but 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. There will also be increased emphasis on pension scheme trustees to improve the quality of their own record keeping, as there is of course the requirement to match a number of basic member details to the details on the dashboard (in order to sync the different pension schemes together). Any push to improve this common data will improve member outcomes and make interaction with pension schemes easier. With an inbuilt pension tracing service, lost pension pots may become easier to find in some circumstances. [Source 1]

Looking to the future, there is likely to be improved interaction with younger pension scheme members. This would be the age demographic more likely to engage with a new online tool and theoretically have the best opportunity to make positive changes to affect their retirement outcomes based on the information to which the dashboard gives them access. Being able to view all combined projected benefits at retirement will potentially encourage young people to increase their contributions into their pension schemes in order to improve their future retirement outcomes. There could also be improved understanding among pension scheme members regarding the effect of contributing more into a workplace pension versus a private pension (for example by helping them understand the effect of higher employer contributions to match their own and National Insurance contributions uplift). Over the years this will improve the financial health of the pension members that were able to contribute more and take pressure off the UK Government to provide benefits for low income pensioners. [Source 2]

A final advantage of the dashboard to be considered here is the improved member experience that could be created using better technology and integration. A feature of the dashboard that has been announced is the ability for members to be ‘verified’, which will make it easier and less time consuming for them to prove their identity when they come to take their benefits. Future technological improvements and integration may bring further benefits, such as a member being able to align their investment strategies across all schemes or arranging pension pot consolidation via a single point of contact. Advisers (those considered appropriate by the money and pension service (MaPS)) will also be able to view their client’s dashboard, which will make giving regulated advice easier as much of the required information will be available in a single location. [Source 3]

Disadvantages of the dashboard

Perhaps the most obvious downside of the dash board will be the increased cost of pension scheme administration and increased trustee liability. All of 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 the smaller firms not being able to establish themselves in the future and the possibility of some existing companies being forces to leave the market. This could decrease member choice and competition which, theoretically, 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). Pension scheme trustees will also be liable for the information they provide (or fail to provide) to the dashboard. An increase in liability could lead to higher trustee indemnity insurance premiums in the future. It could also dissuade potential future trustees from seeking the position, which could lead to a decrease in the trustee ‘talent pool’ that is available.

In a world in which the General Data Protection Regulation (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/scammers. There is also the potential for human error causing breaches.

There is also the possibility that this move, which is partially designed to decrease the number of lost pension pots, could lead to a future increase. Currently there are approximately £19.4 billion worth of lost pensions (according to the Association of British Insurers ABI)) and a generation of pension savers being used to all (or what they think is all) of their past pension providers being viewable on the pensions dashboard might be inclined to not search for pension schemes that do not appear on it, even if this is due to a simple administration error (such as an address not matching correctly to a person’s name). [Source 4]

The final disadvantage of the dashboard to be considered here is the quality and consistency of the information being provided to the dashboard. As every pension scheme will eventually need to be included, which will involve many different pension providers providing information for projections to show benefits at a person’s retirement age. If for example one provider bases their projections on standard ‘Statutory Money Purchase Illustration’ (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. Any incorrect information held on a person’s record, even if only held temporarily by mistake, could lead to poor retirement planning if a person or their adviser views the dashboard while this information is held on record. Although pension scheme should of course strive to always hold correct information, the pressure to correct inconsistencies (which in some cases could be put off until a member nears retirement age) must be addressed very urgently to ensure only correct information feeds into the dashboard.

Conclusion

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. A few of the anticipated advantages involve the potential for improved member outcomes, retirement planning and greater interaction (especially from younger pension scheme members). A few of the disadvantages might be increased administration costs, data protection issues and inconsistent/missing information. However, only time will tell.