What happened to Pot-Follows-Member?
Since the election there has been no word from the DWP on their Automatic Transfers policy (also known as Pot-Follows-Member). It does not now seem to be a priority and may not see the light of day for some years yet. Meanwhile, the new favourite approach to try to help us all keep track of our pensions appears to be the Pension Dashboard.
What is a Pension Dashboard?
Rather than actually transferring pensions into a single policy (as would have been the case for Pot-Follows-Member) the Pension Dashboard would give members a virtual view of all their pension pots across all pension providers and schemes. This would allow them to find any lost pots and estimate their retirement income. With a clear view of all their investments the member is then much better able to make sensible decisions about what to do next. If it makes sense then they may choose to start consolidating their pension savings by transferring from one scheme to another.
This sounds great. Who wouldn’t want such a tool? But accessing pension policy data in real time from across all the pension administration systems in the country won’t be an easy task. Many pension systems are creaking under the strain of dealing with rapidly changing regulation whilst simultaneously supporting ancient pension products with a life-span of many decades. You can’t just plug all the pension providers into the Internet and fire up your browser.
How will it be built?
In their analysis for Pot-Follows-Member the DWP considered 3 options: a centralised government system; an industry owned system; and an open standards or ‘federated’ model. The government system option was quickly rejected. Recent history is littered with failed government technology projects.
The industry owned system was also found to have fatal flaws. Who would own and control it? The Pensions Regulator? The life offices? It was clear that an effective monopoly for some organisation or organisations would not benefit the industry as a whole nor the end customer. There would be no incentive to decrease costs or improve the service, no scope for innovation, and all parts of the industry would be compelled to use the service however unsuitable it might be for them. Multiple incompatible industry systems would be even worse as all administrators would have to plug into all the systems.
Instead the DWP adopted an open standards or ‘federated’ model. (If you’ve been following the leading edge technology developments in financial services, such as digital identities and personal data exchanges, you will know that they are all now adopting the open standards approach.) In the open standards model, multiple competing technology suppliers provide interoperable solutions. Each pension administrator can choose the technology provider that offers the most suitable solution for their needs but will know that they will be connected to all other administrators with compliant solutions. The open competition between technology providers drives down costs and encourages innovation. This same model can now be used for the Pension Dashboard.
Who would provide it?
In this open standards Pension Dashboard model, multiple Pension Dashboard ‘Enablers’ will work with pension administrators to create standardised search facilities. This will provide the foundation for a variety of companies to launch their own Pension Dashboard service for customers. Likely candidates are pension providers trying to encourage their customers to transfer more of their pensions, IFA networks wanting to provide a better service and government agencies helping out disadvantaged sectors of society.
And because it’s based on open standards with multiple competing technology suppliers the innovation won’t stop there. Some services would almost certainly be extended to show all savings products, not just pensions, and possibly to also include debt and protection information to give customers a complete view of their finances. Services might also be tied in with new digital identity and personal data initiatives to make it just one piece of a much larger digital services jigsaw.
Where do we start?
With all the uncertainty surrounding pension regulations it’s unlikely that many providers will want to commit to supporting a Pension Dashboard until the government gives a clearer direction on its intentions. Providers are understandably nervous that another change of heart from the government could leave the Pension Dashboard high and dry alongside Pot-Follows-Member. Nevertheless, regulators, providers and technology companies have already started sketching out how a Pension Dashboard might be delivered. If all parties are willing to play their part in an open and collaborative debate then just maybe we can get it off the ground this time.