Finding our pensions

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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.

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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

  1. Less expensive
  2. Less complicated
  3. More secure
  4. 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

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There were a number of people in the room who were expert on the development and delivery of open banking.

There was no credible argument as to why a single pension dashboard would be more secure.

They pointed out that the pension finder service is not in itself a dashboard, it just points to where people’s pension rights exists. For a pension finder service to really work, it will have to authenticate (verify) who people are and then ask all providers whether they have pension rights for that person.
This means building what’s called a “technical architecture” that allows a message to be sent to all regulated pension providers included by compulsion from Government legislation.
This interrogation does not need any manual intervention , the request is made electronically through an API – which is a digital gateway to the data a provider holds secure. Think of the API as a password protection system which once passes gives free access to search.
The argument against a single pension service is that you do not have to restrict the number of people looking for data (pension finding) – the market will do that. But whether the search is by Pension Finder A or Pension Finder B makes no difference to the security of the system.
So long as any pension finder service adopts the protocols and data standards laid down at outset,  it is hard to see what a single pension finder service delivers in extra-security.

Less complicated

Arguments were put forward in the meeting that the number of pension providers and pension pots made pension finding very complicated. This is currently true, but that’s because there is no way to search the pension genome for people’s records. What you are actually searching for – (a combination of name, national insurance number and date of birth for instance) is very straightforward.
The hard bit is to get every data manager to adopt the API and allow the pension finder services in to have its look around. Actually, finding pensions should be very simple as long as a single data standard is adopted. So it has proved in open banking.
Again, the intuitive argument – “pensions are complicated- let’s not make them more complicated”, sounds good – but it’s not based on any rational argument. It is no more complicated having four search engines looking for data than one, it is only more complicated if they look for data in different ways.

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.

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Less trouble for providers

This fourth argument – which overlaps with the argument about complexity, quickly falls away when you fully understand that what is proposed is a straight through process.
Providers will no more know they are being searched for data than I know that you have read this blog!
The trouble for providers comes when people discover mistakes in the data they see or when they can’t find the data because it is mis-recorded or because the search engine is down.
What I think is behind this concern is that providers feel more comfortable dealing with a pension finder service run by their own. It is true that a single pension finder service would be run by “the usual suspects” rather than “challengers”.
To name names, the usual suspects in the room were Origo , Equiniti and ITM and the challengers were Pension Bee, Pension Sync and Altus.
Amusingly – one of the usual suspects referred to the challengers as “any old Tom, Dick and Harry”. You can guess how this went down.

 


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.


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About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in Dashboard, pensions and tagged , , , , , , . Bookmark the permalink.

2 Responses to Finding our pensions

  1. 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.

    Liked by 1 person

  2. henry tapper says:

    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.

    Like

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