For many years there has been one topic guaranteed to generate a stifled yawn in a room full of IFAs – the idea of a pensions dashboard. Few people were actually opposed to the idea of the public being able to see all of their pension rights in one place. But it has been talked about for so long that advisers have understandably focused their attention on more pressing matters.
However, there are signs that all this is starting to change. There is no doubt that the government is committed to the delivery of a pensions dashboard and is trying to drive things forward, despite one or two other issues vying for its attention at the moment.
The Pension Schemes Bill, which is currently going through parliament, provides for a legal duty on pension schemes and providers to supply data to a dashboard. The legislation is light on detail, but it gives the government power to make it a legal obligation to provide data, and that is a key step forward.
A second key step is the establishment of a pensions dashboard programme, headed by Chris Curry, who is also director of the Pensions Policy Institute. The programme has already published detailed consultation documents on the ‘breadth’ of data to appear on the dashboard (essentially, what sort of products would appear) and on the ‘depth’ of data (how much detail to provide on each pension).
We expect to see conclusions of those discussions in the autumn, while in the New Year the government is likely to set out more detail on the implementation timetable. This could include things like whether some schemes (such as big master trusts) will have to supply data sooner than others (such as small, closed defined benefit schemes).
There are, however, a number of significant challenges that will have to be overcome.
One relates to the way in which data is presented on the dashboard. Consumer research suggests that what people want to know is the amount of money they will have to live on at retirement from each of their pensions.
Even for defined contribution pensions this is challenging. First, projections of future pot sizes in contracted-based DC pensions (such as personal pensions) are done in a different way from projections in trust-based (occupational) DC pensions. Second, it would be necessary to convert the pot size into an income figure, presumably via an annuity calculation, even though many people will not actually use their DC pot to buy an annuity.
In the DB world, it is going to be even harder. DB pension schemes currently have considerable flexibility in the way they present information to members, and for deferred members there is often no regular communication at all.
Some schemes tell active members what they have built up so far in current prices, while some give an at-retirement figure based on future service. Estimated retirement income needs to take account of the way that the different elements of DB rights are revalued up to retirement, and many people with DB rights will have different ‘tranches’ of service that may have different features, including the age at which that tranche can be drawn.
The dashboard programme has a big call to make about how the data is presented to the public. Originally, the suggestion was that the data on the dashboard would simply be the information members already received via annual statements or that they could get on request. But, as noted above, this could see information presented in inconsistent ways between different pensions on the same dashboard.
The alternative was to set out a standard way of presenting DC and DB pension rights so that all pensions on the dashboard were shown in a consistent way. However, this information would then be different in many cases from the figures on annual statements.
All of this points to a huge opportunity for advisers.
The pensions dashboard is likely to generate many questions. Although clients will be presented with a lot of information, which they will need to make sense of, the one thing the dashboard will not do is tell them how to use it.
In some cases, the information will be good news as people are reunited with lost pension pots. But for many more it will provide evidence that they are not heading for the kind of retirement that they want at a time of their choosing.
In a world of easily accessible pension dashboards, many more people will realise they need personalised advice, and this could be a great opportunity for advice firms looking to expand.
Steve Webb is a partner at LCP