A need for pension
I am keen not to pour cold water on the pensions dashboard, but I am not having it promoted as the game-changer to savings behaviour. The pensions dashboard is what Martin Clarke, the Government Actuary, refers to as ” a mechanism to deliver policy objectives” in his recent blog on adjusting the state pension age.
It is clear to me that most people still consider the state retirement age as the point when “we are allowed to retire”. The reports of both GAD and John Cridland link the state retirement age not to when we’d like to retire but when the nation can afford us to retire – and subsidise retirement with state paid income.
The most important numbers to be delivered through the pension dashboard will not be from the private sector but from the DWP, indicating our state pension entitlements – what and when.
From what I have seen of prototypes, these numbers will continue to be delivered as income and not as a capital sum. There is no plan to offer a CETV on the state pension. People may be interested to fantasise about their state pension’s replacement cost but this has no more value than accelerating all our earnings since we started work and boasting that our lifetime income capitalised runs to £xm.
No matter how painful it is to ignore capital and think of lifetime income, we need to do the maths this way. We cannot allow the dashboard to become a placebo where a projected capital sum deludes us into a false sense of future prosperity. Retirement saving is a lot harder than 1% of band earnings, it’s a major endeavour, as important as going to work, paying the rent or mortgage and bringing up our families.
A need for enterprise
We have taken a decision, unlike many of our peer group of retirement saving nations, to make the dashboard a commercial enterprise that can be offered by any number of organisations as a means to promote their purposes. I agree with this, the state is not good at promoting itself as a pension provider, viewing our retirement savings holistically is a good idea and there is plenty of incentive to pension providers to promote their dashboards as a means of increasing pension flows their way.
Since we have three sponsors (the OECD pillars) in our pension system, let’s hope that these commercial dashboards will properly promote not just the state and the individual’s role, but the part played by employers in delivering pension outcomes. By commercialising the delivery of the dashboard, there is a good chance that employers can be brought to the party, their contribution recognised and their engagement with their employee’s pension encouraged.
However, in passing the dashboard to those promoting pension savings for commercial end, we need to be mindful of the risks this brings.
- There is a risk that by adopting uniform projections of private pensions, people are led to believe that outcomes are automatic. They are not, they depend on the quality of investment and the costs deducted.
- There is a further risk that providers will consider the dashboard an excuse not to invest in product but to focus purely on marketing their ease of saving
- There is a regulatory risk that the Government will take their focus away from the value for money agenda, wowed by the wonders of Fintech.
As regards the difference in outcomes from investment and costs, the dashboard needs to be developed in conjunction with reporting on how providers are actually doing. We need league tables that tell us accurately how each provider’s default investment option has performed, the risk taken to get that performance and the slippage from gross to net performance that indicates the cost of investment. We need , in short a “value for money” score, independently calculated with the stamp of the regulators upon it.
When it comes to product, we need the IGCs and trustee chairs to step up and provide dispassionate evaluation of the progress of each provider in delivering value and reducing costs. Providers must understand that the IGCs and trustees are their consciences and not an extension of their marketing arms.
When it comes to Government, we need as much attention paid by the Treasury team, lining up at Fintech conferences, to good governance as sexy promotion. It is only too easy for the Treasury to continue to bag short-term acclaim at the expense of what happens in decades to come.
And a need for circumspection
There is a lot of good coming out of the dashboard. It will make for cleaner data, it will push pension providers forward to embrace the Fintech dividend of higher individual engagement and it should lead to aggregation of savings into better product.
But we need to be circumspect and not allow the noise of the Digital Garage, to disguise the serious task ahead of us in turning Britain from a savings laggard to an example of a balanced society with a sustainable retirement savings culture.
Further reading –
Government report on last week’s tech sprint; https://www.gov.uk/government/news/winners-of-pensions-dashboard-techsprint-revealed-as-fintech-week-2017-draws-to-a-close
Daily Mail article showing examples of pensions dashboards; http://www.thisismoney.co.uk/money/pensions/article-4364904/Pension-dashboard-showing-savings-2019.html
Martin Clarke’s blog about pension adequacy and the state pension age; https://www.gov.uk/government/publications/periodic-review-of-rules-about-state-pension-age
So is this new? Many quality Financial Advisers that I know discovered the need for cash flow planning back in 1985 with an adaption of Brian Warnes book “The Genghis Khan Guide to Business” Castle Flow Handbook
Aggregating savings and projecting outcomes is well established the new wheel is still a wheel even if we call it a dashboard
The problem today for many of my clients is that we trusted Government never imagined that the Life Time Allowance would rob us of 30%+ of our retirement savings
Beware this retrospective tax applied to an ISA near you.
The problem of the young is that after paying rent of 50% of take home pay a student loan at 6%+ they have no money to save
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