Written by Ben Cocks on Thursday 2 November 2017
This article was first published by FT Adviser on Wednesday 1st November 2017.
The announcement from pensions minister Guy Opperman that the Department for Work and Pensions (DWP) will take the lead on the pensions dashboard is a welcome shot in the arm for the initiative. Since the election there has been no clear indication that the government would continue to pursue the dashboard and without that support the momentum was beginning to ebb away.
It is also significant that responsibility for the project is moving from HM Treasury to the DWP. This suggests a transition from policy ambition to the more practical matters of delivery.
The DWP has shown through its work on the pot-follows-member policy – a now-defunct, yet ambitious, programme of automatic pension pot consolidation – that it can work with collaboratively with a wide section of the pensions industry. This is undoubtedly the key to a successful outcome.
The pot-follows-member initiative was at a far more advanced stage than the pensions dashboard is now and yet it still failed due to changes in government priorities. A cautionary tale.
So this is not the end of the pensions dashboard debate. It is just the beginning. The Association of British Insurers (ABI) has done a great job building enthusiasm for the project by demonstrating prototype systems, but all the big questions still need answering: Who will be responsible for the dashboard? Who will pay for it? How will pension schemes be persuaded to participate?
What then are the key challenges for the DWP policy adviser in whose in-tray the dashboard will shortly appear?
The public will not have much confidence in a dashboard showing just some of their pensions. Most in the industry now agree that pension schemes must be compelled to participate. Large swathes of the industry, particularly closed book, government and occupational schemes, will not participate unless it is a regulatory obligation to do so.
This does not mean they do not support the dashboard, only that they have other priorities. A project that costs money (in some cases the members’ money), an uncertain future and no direct return on investment is unlikely to be made a priority in a congested pipeline of change projects.
Somebody needs to set and enforce the rules for all parties involved in the pensions dashboard. Members must be protected, standards set, liabilities apportioned and service levels imposed.
The governing body cannot be owned or run by a few industry participants, allowing one part of the industry to impose rules and costs on all the rest. The governing body will either need to be government controlled – for example, the FCA – or controlled equally by all its members – for example, Tisa Exchange.
- Pensions minister Guy Opperman has announced that the pensions dashboard will go ahead.
- The technology to provide a dashboard is available.
- Compulsion will be necessary to make it work.
In all the column inches generated by the pensions dashboard there are very few about who should pay for it. The expectation is that the dashboard will be free for consumers to use.
The government has stated that it is not expecting to pay. It seems hard to rely on pension schemes and their long-suffering members to pay, other than for changes to their own technology. This suggests that the dashboard providers should pick up the lion’s share of the bill.
The key will be to ensure there is competition between technology suppliers to drive down the costs for everyone.
The DWP does not need to worry too much about technology. Despite being the focus of much of the debate, technology has never been the problem. Provided there is a robust set of technical standards and a fair market for suppliers, there are plenty of technology companies that are more than capable of delivering dashboard solutions.
To understand the direction the DWP will take on these questions, it is worth looking at the reasons behind the government’s enthusiasm for the pensions dashboard in the first place.
Of course the headline reason is to help pension holders make sensible decisions when navigating their way through their new-found pension freedoms. A consolidated view of all their pensions will help an individual understand how much more they need to save, when they might be able to retire, whether they should consolidate with one provider and how they might start accessing their savings.
But it is clear that the government is also keen on promoting competition. The Treasury envisaged a dashboard showing a list of pensions that included a comparison of costs that would encourage consumers to switch providers and put downward pressure on pension charges. Although pension scheme charges have quietly been dropped from scope, the ambition still remains.
The government also wants to support the burgeoning UK fintech industry. It is keen to give fledgling technology companies the chance to impress people with new ideas and provide a stepping stone to greater things.
Given the above I hope to see DWP adopt an open approach to delivering the dashboard: open standards, open competition and open governance. Many providers should be allowed to offer dashboards and compete for the attention of consumers.
No organisation should have a monopoly on the dashboard infrastructure, rather technology companies should have to compete for business allowing new innovative suppliers to emerge. All participants should have an equal say in how the dashboard is operated.
If the wrong decisions are made now it could result in just another expensive, inflexible legacy system – another millstone around the neck of the industry inhibiting future innovation.
But if the DWP can get this right then the framework for the dashboard could provide the foundation for much greater change in the future.
The ambitions of the pensions dashboard are modest. Given the direction of new legislation such as General Data Protection Regulation (GDPR) and Payment Services Directive II (PSD II), it does not take too much imagination to see that we are heading for a world where an individual routinely shares their information across multiple organisations and financial services are delivered by a network of providers offering complementary services.
If the dashboard design is right then it will be able to extend to cover other types of savings, bank accounts and insurance, giving a more comprehensive picture of an individual’s financial position.
So the DWP has a great opportunity to make a positive impact for many years to come.
Unless, of course, another change in government priorities leaves the pensions dashboard quietly kicked into the long grass alongside pot-follows-member.