In a vigorous debate at DWP HQ, two quite different approaches to finding pensions emerged. This blog helps people to understand what the debate is about and why it matters to everyone.
It matters because there is some £20bn. lost and because much of the rest of the money in DC seems so distant from its owners – that it might as well be. Putting people back in touch with their money is what makes the pension dashboard such an attractive thing.
The received idea
The Government is minded to award a contract to a firm or consortium of firms to deliver the pension finder service that is a key part of the pensions dashboard.
While the department recognises the commercial opportunities created by multiple dashboards, it believes that there should only be a single PFS which, as a matter of principle, is run on a non-profit basis and with strong governance. The industry delivery group will need to decide how best to deliver a PFS and how it can adapt to changes in approach over time.
The arguments for a single (closed) pension finder service are four
The proponents, principally the organisations who have been expecting to be awarded the contract to deliver argue that a single pension finder service would be
- Less expensive
- Less complicated
- More secure
- Less burdensome on pension providers.
All these arguments are intuitively right. When I say “intuitive” I mean they feel they are right without conscious reasoning.
Those who argue that the market will dictate the right number of pension finder services, do so from a more cerebral position.
During the meeting it became clear that the intuitive approach, attractive as it seems, has logical inconsistencies and the potential to deliver a second rate service at a high cost.
Arguments against a single pension service
There was no credible argument as to why a single pension dashboard would be more secure.
Less complicated
Less expensive
Again – intuitively you’d think that building one big search engine to find pensions would be cheaper than building four or five. But again there is little logic behind this. What is expensive is the adoption of the APIs and the cleansing of the data needed to make sure pensions are findable.
And there are important arguments here in favour of a number of pension dashboards.
Firstly, granting a monopoly to one national service is precisely what Governments don’t do. We don’t have one Gas Company, one Rail Network, one Internet Provider one Workplace Pension. If we did – the public would demand its break-up. These monopolies happen only when there is no alternative – for instance there is no alternative to one lifeboat rescue system.
It is very hard to see how granting a monopoly to one pension finding consortium can be in the long-term interest of the consumer.
It is also very probable that the one provider will for some time fail to deliver value for money. We know that things go wrong with all Information Technology and that outages occur in service, Sometimes these are planned, the pension finder service would need to go offline for maintenance and upgrades. Sometimes outages are unplanned, as happened recently to 02’s internet service, When things go wrong for a national provider , such as a single pension finder, things would go wrong in a big way,
Not only does a single service risk people having to pay more (through levies) but it risks delivering less and creating frustration.
Less trouble for providers
Mood music
Normally consultations are pretty boring – take the CDC one. Most matters have been decided and the consultation tweaks the tail of legislation.
With the Dashboard consultation I am not so sure. The debate on a single pension finder service gets to the heart of deliver, asking questions of who the dashboard is for and what protection the consumer really has.
In the fascinating debate had between the Fintechs , I saw precisely the dialectic I had expected. On the one hand, the established players looking to deliver as they wanted and on the other – the challengers – looking to move things on.
The mood music within the DWP is I sense changing, the Pensions Minister has been spotted in Pension Bee’s offices, the DWP are opening itself up to these debates and genuinely listening.
If I was wanting to take a bet on this , I would keep my money in my pocket. The Consultation has given the single pension finder service a big tick – based on intuition, but momentum is with the challengers – who are mounting better arguments and delivering with greater fire-power.
The argument is far from over.
Frankly, I don’t care who runs the dashboard. I do care that there should only be one access point to all the information. Having alternatives seems pointless if they all have the same information and they must have the same, comprehensive, information. If they don’t then nothing is gained and people have to do the rounds of all dashboards in the same way that they should do the rounds of providers now.
The information is important to people for many reasons and not having all the information, in one place, can be costly. Not just in lost opportunity or income but in penalties as well.
For example, pensioners on benefits have untaken pensions taken into account as notional income. This is calculated from the pot value using GAD tables and the current 15 year gilt rate. If that pension pot is not declared then an overpayment of benefit will occur and that can, in the extreme, lead to fraud charges and imprisonment. Ignorance of the existence of the pension pot is no defence.
Gareth, I totally agree that people need the right information to take the right actions. Whether dashboards can become authoritative on the complex issues you refer to – I doubt. Everything I have heard so far – suggests that the scope of the dashboard will – at least initially – be very limited.
One of the arguments not to over prescribe is that it limits the scope for innovation, a dashboard that integrates private pensions with state benefits is unlikely to get much traction unless someone like you demands it.