Will the Pensions Industry learn to love Dashboards?
I’m unnaturally excited about Pensions Dashboards, but I don’t think my excitement is shared universally within the industry.
I want to explore the reasons for my excitement and why others in the industry may be less enthusiastic.
Why am I excited?
In a nutshell, because I think Dashboards bring two fundamental changes:
They put individuals at the forefront of the pension system, and
They force the industry to digitise, which in turn enables future improvements.
Putting individuals at the forefront of the pensions system
The complex value chain in the pensions system means that providers have to balance the demands of employers, consultants, fund managers, regulators and other interests alongside improving members’ outcomes and meeting their needs. Employers are the providers’ primary client, and the larger ones rely heavily on consultants to help them choose a scheme.
Their interests overlap with those of members to some extent, but they are not perfectly aligned. For example, employers may focus on actives rather than on deferreds, so may value things like financial education for their workforce over, say, better retirement options that benefit more non-actives. They may focus more on minimising their operational burden then on members’ experience. The euphemistically named “active member discounts” are the possibly the most egregious manifestation of this. I’ll return to this dynamic in later blogs.
Members have much less firepower when it comes to promoting their interests. Not least because of their low levels of engagement with pensions. 30% of adults with a DC pension did not know in May 2022 who their pension provider was, 30% did not know how much their pension pot was worth, 55% were not aware that fees are charged on pensions, and 66% had never reviewed where their pension is invested. (Financial Lives 2022, FCA, p230).
I believe that Dashboards will change this. I can see a “cash in the attic” type awareness campaign, making millions of people flock to a pensions dashboard to see if they have money they didn’t know about. Many will be surprised to find they have, and will start to ask questions. Which pension is better? What should I do with them? I think this can only usher in a new age of engagement which makes the industry more responsive to them.
Digitising the Industry
I’ve been working in pensions and technology for over 35 years now and I don’t see that much has fundamentally changed from a technology perspective. Systems that I worked on 30 years ago are still going strong. I would love to think that this is a tribute to my robust software development skills, but I suspect that it’s more to do with an enduring underinvestment in pensions technology.
We have been struggling with poor data, lack of automation and sclerotic technology for so long that we’ve accepted it as a structural feature of our landscape. So when we’re faced with a new opportunity, we resist it because the systems can’t cope and the data is too poor..
Dashboards force us to fix this. They mean that every scheme needs to be able two answers two simple questions, online and immediately:
Do you know me?
If you do, what have I got with you?
You can’t do that unless you can connect to the dashboard infrastructure, share accurate data and calculate pension projections in near real-time. Although there are some easements in the timescales, I can see these becoming stricter over time.
Once our pensions infrastructure can handle this, the next step could be to make it easier to move members’ accounts between providers. When you add rules to do this automatically (say if someone has less than £1,000 in an account and hasn’t contributed for a year) you facilitate Pot Follow Member. Adding seamless account movements creates a kind of “pensions national grid” which could also be the foundations for a lifetime provider model (which I have a lot more to say about later).
So dashboards are just the start; a necessary first step in digitising pensions and boosting engagement which has the portential to revolutionise the pensions system.
Industry reticence
But I sense a reticence in some areas of the industry about Dashboards. When we were preparing for auto-enrolment, it dominated every conference for years before they started. We ran countless seminars that were always in demand. I do not see the same levels of interest for Dashboards, despite valiant efforts from the Pensions Dashboard Programme, PASA and others. When I look at the agendas of upcoming conference, I barely see any mention of Dashboards.
I wonder why this is. Here are some possible reasons.
People don’t think it will happen because there have been so many delays. They are waiting for the election to see if the next Government will be committed to Dashboards
Schemes underestimate the scale of the changes they need to make. They think their software providers will sort it out, or that they can just export their data to an ISP
People think it’s an unnecessary white elephant, perhaps because they represent DB schemes whose members stay in them for their whole careers; or
There are more pressing, or lucrative, initiatives for providers to focus on.
I don’t know which, if any, of these apply. I’d guess that Dashboards are seen a a regulatory cost with uncertain outcomes, rather than as a commercial opportunity. Whereas auto-enrolment was primarily a massive commercial opportunity. This could explain what seems to me a lukewarm, minimal response to them.
If that’s true, I think it’s a shame. I think Dashboards promise a step-change in the way individuals engage with their retirement planning. And by forcing the industry to digitise, they provide the foundations for more innovation. Providers that grasp that opportunity with confidence and enthusiasm will be well placed to capitalise on that wave of engagement.