Final salary schemes are likely to boycott the pensions dashboard, thereby seriously undermining efforts to empower consumers to take charge of their retirement savings, unless the government makes participation compulsory, pension experts have warned.
Currently in the early stages of development and due to go live in 2019, the pensions dashboard is intended to be an online portal for consumers to review, and potentially consolidate, all their pension pots.
But experts have warned there is no incentive for final salary schemes, also known as defined benefit schemes, to participate in the voluntary initiative. Given the DB sector accounts for almost 70 per cent of the UK’s retirement savings, not having their data to feed into the dashboard would leave a gaping hole.
Former pensions minister Steve Webb, now of head of policy at Royal London, said older workplace schemes feared the dashboard would cost them money and members, so are highly unlikely to participate voluntarily.
“There are an awful lot of people for whom this [the dashboard] is not a good thing,” he told FTAdviser. “The old, closed providers are worried they’ll stick the information on a dashboard, and members will all transfer their money out.
“Unless the government gets a big stick, these people will drag their heels.”
Mr Webb said therefore compulsory participation was vital. “If we want the dashboard to be comprehensive, they [pension providers] will have to be obliged to do it.” But he
However, he added the government had “no appetite” for taking a leading role, because it did not want the expense, headache and potential bad press of another government IT project.
HM Treasury, the department responsible for the policy, confirmed it had “no plans” to make the dashboard compulsory.
This reluctance has meant DB schemes have so far not needed to lobby against the initiative, Mr Webb pointed out.
However, Peter Scott, who is head of pension regulation and compliance at pensions administrator Equiniti Pension Solutions, said DB schemes could “very well lobby against the dashboard” if the government did move to make it compulsory.
“The dashboard will create huge problems for old DB schemes,” he said. “If you’ve been around since the 1940s, a lot of this data isn’t even recorded digitally.” He said some records were in “dusty boxes”, with others on microfiche, an archaic method of digitally recording paper documents.
“The data is there,” he said, “but it doesn’t exist in a readily available format. It’s doable, but it will be time consuming and costly, and the old DB schemes will ask who’s going to pay”.
Mr Scott noted it is not just an issue for DB schemes, with single employer DC schemes also standing to lose members through the dashboard. “You could ultimately see a lot of the single employer DC schemes wither on the vine,” he said, predicting some such schemes would end up farming out their pensions to emerging auto-enrolment master trusts.