The Department for Work and Pensions consultation on introducing Pensions Dashboards in the UK closed this week (28th January).
With less than 12 months until Dashboards need to be up and running, there remain significant uncertainties about how they will work in practice.
Tom Selby, senior analyst at AJ Bell, assesses four key Pensions Dashboards questions that need answering.
1. When will schemes be forced to comply?
“Savers viewing retirement information on half-baked Pensions Dashboards risk making sub-optimal financial decisions. Furthermore, the credibility of Dashboards could be severely undermined if people aren’t confident the data presented to them gives a full picture of their circumstances.
“Although we expect a large proportion of the defined contribution market to provide information for Dashboards voluntarily, those who are not net receivers of transfers and defined benefit schemes have less incentive to do so. It is therefore imperative Government introduces legislation as soon as possible to maximise coverage.
“In the interim, careful consideration needs to be taken in explaining to members what information the Dashboard they are viewing shows them, and what is likely to be missing. Getting this right will be crucial to the success or failure of the project as a whole.”
2. What will people see on Pensions Dashboards?
“It remains unclear how information will be presented to savers who use Pensions Dashboards. This will be absolutely critical if reforms are to move beyond creating a simple pension finder tool and drive increased levels of retirement engagement.
“There is precious little research to reflect on when deciding the most effective way to present retirement information to members. In an ideal world this work would be carried out prior to launch, although this seems unlikely given the political imperative to meet the 2019 deadline.
“We know from various studies that presenting members with too much information is counterproductive, so keeping things as simple as possible is essential.
“To maximise utility and meet customer expectations, we believe Dashboards should aim to show both the capital value of people’s funds and an estimated future retirement income. This income should be based on current levels of contributions, a realistic rate of investment return and the likely state pension age for the member in question.”
3. How will savers react to seeing this information for the first time?
“The big danger in presenting information without first testing the impact of doing so is that people will react negatively. Someone who is told they have a tiny fund which will generate pittance in retirement may decide it is simply not worth it and quit saving altogether.
“The reaction could, of course, be the opposite – those who see they are heading for a grim retirement could be jolted into action and contribute more as a result.
“Although the international experience, particularly in Israel, is encouraging, there remains a risk this experience will not be reflected in the UK.”
4. How will vulnerable customers be helped?
“While we believe Pensions Dashboards can be a valuable tool for more engaged, tech savvy savers, consideration needs to be given to vulnerable customers – particularly those without easy access to the internet.
“There are no easy answers here but we cannot ignore the fact that people without access to the internet are likely to be among those most likely to have lost track of their pensions.
“Of course a Pension Tracing Service already exists, although awareness of this appears limited at the moment. Making sure people know this is available might be the best way to ensure the benefits of Dashboards are delivered to all pension holders.”