How pension dashboards will shake up the sector

The Department for Work & Pensions' consultation on the draft pensions dashboards regulations, launched last month, provides an opportunity for both the industry and individuals to influence how the dashboards will work in practice.

For advisers, the introduction of pension dashboards could revolutionise client interaction as people engage more with their pensions – but how exactly?

Right now, tracking multiple pension pots is far from simple, and it is even harder to know the best course of action when looking to consolidate pots. Nowadays, the concept of a job for life is unrealistic. On average, people will have around 11 jobs during their lifetime. This trend has meant it has become increasingly difficult for people to keep track of all their pension pots.

In the UK, up to 1.6mn workers have lost track of their workplace pension pot

With greater access to their previous pension pots at their fingertips, people are more likely to seek professional advice to help them navigate the complexities of their pension history. And once granted access by clients, advisers will be able to view their dashboard data, saving time, and making it easier to provide clear and efficient counsel. 

This seismic change will empower clients and advisers alike to make better-informed pension choices and present more options to them in a clearer format.

Building on the progression of AE

In the UK, it is estimated that up to 1.6mn workers have lost track of their workplace pension pots, according to The Association of British Insurers, which also puts the figure at around £19.4bn, comprising of 1.6mn pots with an average size of £13,000.

It has been noted that in recent years, with more people changing jobs regularly, the number of workers with small pension pots under £1,000 has surged. Automatic enrolment allows millions of people to benefit from workplace pensions for the first time – even if they move jobs frequently. 

With 2022 marking a decade since the start of AE, the introduction of pension dashboards will look to build on this by providing users with a one-stop shop overview of their pension pots and savings. 

Although the pension dashboards could help to revolutionise retirement planning, the UK is stuck in the slow lane when compared to many other countries and could learn a great deal from their advances. 

Learning from others

Australia is just one country that is light years ahead of the UK – both with its AE superannuation accounts and its established pensions dashboard, which was introduced by the Australian Tax Office in 2013.

Users can log into the ATO portal and use their tax file number to see the latest valuation of all their active super accounts, as well as any unclaimed money belonging to them. And, after introducing a consolidation option more than seven years ago, users can now easily consolidate multiple small pension pots created through mandatory savings in just a few clicks. 

However, despite these efforts, there are still millions of stranded pension pots, so the problem has not been completely eradicated. In a bid to combat this, the Australian government has developed an advice model aimed at helping people navigate the dashboards and build healthy retirement savings. 

This progressive model, which focuses on the fundamental principle of providing good retirement outcomes for retirees, gives the UK an approach to emulate as we progress with the current consultation.  

The dashboard roll out 

The UK’s pension dashboard is expected to be similar to the Australian model, although pot consolidation will not be an option upon launch. Fundamentally, it will be a ‘find and display’ service that finds your pension information from secure databases and then displays it all via the dashboard. As it will be a finder service the dashboards will not store information, meaning a client or adviser will need to run a new search as required.

Users will need to share key information – such as their name, date of birth, address, and national insurance number – to confirm their identity and run these searches. In my view, this whole process could be simplified if a universal digital ID system existed in the UK as it does in many other countries, however, this is something that is being progressed by the government.

The dashboards themselves are set to be provided by the Money and Pensions Service, as well as other organisations that meet the government’s requirements and are therefore permitted to develop and host their own dashboards. 

The progression of the pensions dashboards programme remains in the development phase, with Maps leading the charge to implement the new infrastructure. Voluntary onboarding of schemes is planned for 2022, with all pension schemes then staging onboarding from 2030. The DWP has defined a timeline that should see 99 per cent of all active and deferred pension memberships added to dashboards by the end of September 2024.

It is important to remember that when financials are involved security is crucial, and it is something clients will be concerned about. According to a recent ABI report conducted by Britain Thinks, consumers see security and complete data to be the core of dashboards and will expect these to be nailed.

Many fear that dashboards could provide a back door for potential fraudsters. In part, this is why the government will be ensuring restrictive access is in place, so only those that have permission to access someone’s pension will be able to attain this information. 

Both advisers and Maps will be able to act as an agent and look up an individual’s dashboard if given the user’s approval to do so, but it is worth noting that only financial advisers will be able to leverage the dashboard to give counsel to clients.  

This robust step should further cement a strong adviser-client relationship and increase data security. But to bolster client protection, it is paramount advisers have an awareness of potential consumer harms and that administrators ensure adequate protection measures are in place.

A new opportunity 

As dashboards highlight lost retirement savings for the first time, advisers can look to attract a whole new set of clients, ready to put these small pots to better use. Utilising the dashboard as a starting point will help guide conversations with clients in a quick, efficient, and visual manner – saving time and money for all involved.

What can today be a laborious task, which often puts many people off from even approaching pension consolidation, should become a smooth process with all information readily available at the fingertips of an adviser.

Advisers can look to provide a frictionless process, focusing on the ‘value-add’ of providing counsel and helping clients reach the best possible financial outcome for retirement. Furthermore, not paying fees on multiple pots means advisers can take a more informed approach on the projection valuation of a client, while taking a data-backed view on whether they should be increasing contributions. 

For advisers to take the lead in adopting this technology, it will be important they familiarise themselves with the requirements and how to comply with new regulations. Gaining confidence using the dashboard and understanding the lay of the land will be vital in ensuring advisers are ready to adopt this technology.  

Searching for consolidation advice

As people look to review their pensions via the new platform, we expect it will serve as a catalyst for savers to ensure they are seeking counsel from advisers, especially when it comes to pot consolidation.

Our research found that more than two-fifths (44 per cent) of consumers have not bothered to track down savings from a previous employer. In turn, the antiquated UK system places a heavy burden on advisers when sourcing and consolidating lost pots. If advisers are unable to locate the whereabouts and value of a client’s pension, it becomes difficult to gain a complete picture and therefore advise accordingly.

As a result, people are building up small pots and are in many cases losing track, misplacing paperwork, or forgetting about the previous schemes they invested in. One of the risks associated with this is that, depending on the size of the pot and other factors, some savers may pay more in fees than is necessary. 

As people become more aware of their multiple pots, it presents the perfect opportunity for advisers to assist. Although many clients may wish to consolidate pots, this is not automatically the best course of action for all clients. Therefore, advisers have a crucial role to play in helping clients understand when and if it is in their best interests to consolidate. 

As long as we have the complications of money purchase annual allowance there will always be several people for whom keeping small pots will deliver flexibility in accessing pension pots but navigating the morass of complex rules will never be easy without advice from an expert. 

Transforming the future of finance

The introduction of pension dashboards will be a major milestone in helping to transform the retirement savings landscape. It should be a force for good, at the very least re-uniting millions of pension pots with their owners, and there is no doubt that the new dashboards will nudge savers to seek advice to ensure financial security for later in life. 

The dashboard programme also provides new scope for companies in creating fresh business models in anticipation of the increased interest from clients around planning for the future. Additionally, employers can use this as a chance to refresh engagement among colleagues, providing training and learning opportunities to ensure advisers can use the new tools effectively.

Companies and advisers that take this positive approach and keep an eye on the dashboard programme updates will be able to nurture existing relationships and attract new clients across all generations.

Robert Cochran is senior corporate pension specialist at Scottish Widows