This blog looks at how the information from the pensions dashboard could help those on low incomes with low savings and it focusses not on how they save, but how they spend their savings.
I had hoped , following the publication of MAPs strategy document , to better understand how Public and Private sector resources could better work together to deliver help to those in their fifties and sixties trying to plan their later life finances. As I mentioned when reviewing the strategy document, the plan is insufficiently detailed for me to develop my understanding.
I hope that in continuing to write these blogs that I can influence those charged with delivering the dashboard to focus on what the dashboard should be doing – finding people’s pensions and displaying them digitally.
I hope that the industry will stop obsessing about making the dashboard a tool to encourage people to save more and get on with the big job in hand – building digital pipes to pension databases that allow us to see in real time , what we have coming to us in later life.
Gareth (the Ferret) Morgan, who I take as authoritative on these matters, estimates that
50% of income in retirement is paid by the state
It is clear to anyone who knows people in retirement, that the private pensions we have created only present part of the picture. For those with low amounts of savings the state pension is likely to be their main source of income unless they can take out a lifetime mortgage on owned property. Such people will be much more interested in accessing benefit calculators from entitledto or Turn2us or Policy in Practice
These private sites allow people of limited means a chance to self assess their benefit entitlements but they do not help people with pension savings how to manage the spending of their income to maximise their “take home”.
To work out how entitlement to benefits is affected by the drawdown of savings “deemed” pension income, you need more than a benefits calculator, you need a tool that integrates pension income from private means with state entitlements.
Software capable of doing this can be built, Gareth Morgan has built the tools that could be encoded to develop the services offered by the likes of Turn2us. But for this to happen , people will need to be able to see their pensions in one place.
Ordinary people will need the pensions dashboard to work out what their AgeWage, the wage they get as they slow down working, will be.
They will need to know what the impact of annuitising, of using the various forms of pension drawdown and the use of cash from savings will be on their benefit entitlement.
And if they decide to increase income by mortgaging their house, they’ll need to understand how that impacts benefits too.
The dashboard provides the information, it cannot provide the plan.
Right now, to work out how to get the plan together you need a financial advisor , skilled in using the tools that Gareth builds and capable of making recommendations on financial products to those entitled to benefits. Quite rightly, the FCA does not want what they consider vulnerable people, taking life-changing decisions without properly understanding them.
But there is very little capacity to do this planning and the vast majority of people who are entitled to benefits , do not take them up. Age UK is urging anyone who may be entitled to claim benefits to call Age UK Advice free of charge on 0800 169 65 65, visit www.ageuk.org.uk/money or contact their local Age UK for further information and advice.
Each year up to £3.5bn of Pension Credit and Housing Benefit goes unclaimed by older people. On top of this, many who were getting these and other later life benefits, lose them as they fall off cliff-edges by taking their pension income in the wrong way.
The rules around Mixed Age Couples that came into force in May last year, now make these cliff edges more perilous to the finances of the poor. Many are being asked to walk a coastal path blindfolded.
The dashboard cannot solve problems, it can only give us the information to make decisions
I am increasingly frustrated by the noise that comes from the pension industry that continues to promote the pensions dashboard as a means of saving more.
The dashboard is a means to help people take good financial decisions but only in that it finds and displays the data that allows those decisions to be made with that data.
The pensions industry obsesses about what information the dashboard should display when it is quite clear what people are asking for. People want to see information on their pension savings in one place so they can use it to take decisions.
The dashboard cannot be expected to make those decisions nor can MAPS (even with TPAS and Pensions Wise inside) , help people to “turn pension pots into retirement plans”
Concluding a long and detailed blog on how notional pension income and benefits interact, Gareth Morgan wrote
Few advisers, whether financial or welfare rights, seem to adequately consider the value and impact of notional income from pension savings. Although sometimes complex mathematically, the effect on individual and family incomes and benefits can be substantial, and there are tools available to carry out the calculations.
In particular, ensuring that prompt revaluations are taken into account following withdrawals of income or capital will be vital to ensure that correct benefits are paid.
The new rules for mixed-age couples make it likely that they will be more severely affected by the notional pension rules than those in other situations.
This note has shown that there are, in many cases, options and choices for those with pension savings. It is incumbent on advisers to understand those, and the consequences, and to make sure that their clients do as well.
For most people with low incomes and low capital, the dashboard will give them the information to populate modellers which can help them maximise their benefit entitlements and perhaps find extra income from assets such as their house. The dashboard may also give them the info they need to work out how much work they’ll have to do- to top up their “AgeWage”.
If this information is properly available to third party systems via APIs, then people like Gareth Morgan and me can build benefit tools that allow ordinary people to get their full benefit entitlement and access financial products as part of their retirement plan.
But without access to the information that dashboards should give us, it is a whole lot harder.
Delays in the delivery of a pensions dashboard hurt the worst-off hardest
While those who are better off can afford financial advisers and are better acquainted with financial services in general, most people do not pay for financial advice
The dashboard will be a free utility, you can access through some Government Gateway, to get information on your pension entitlements.
I hope that it will link to organisations like AgeWage , keen to help everyone, including those with limited means to turn pension pots into retirement plans.
There are estimated to be 700,000 people a year who decide to start relying on their savings and pensions as their AgeWage, most still rely to a degree on work but most of the people who are winding down from work, talk of themselves as retiring.
These are the people who need the dashboard most and they include the huge numbers of us who rely on benefits and the state pension as their main source of later life income.
The way these benefits are impacted by savings and pensions can be dramatic. I have seen examples of people claiming disability benefits who have actually been worse off in terms of take home, by drawing pension income.
It annoys me that while the DWP and the financial services industry wrangle about how information on dashboards should be displayed, these people continue to miss out on pensions which cannot be found and benefits which are either unclaimed or disqualified because of ill-informed decisions on how pension income is taken.
People can scam themselves through lack of information.
For all those in the DWP who think that the private sector is preying on such people, please remember that there are people like me , Ros Altmann, Gareth Morgan, AgeUK, Turn2us , Entitledto and a wealth of others, who want to use the dashboard commercially to deliver better deals to those who have little access to advice or guidance.
A plea to MAPS
I am pleased to see that MAPS has this week confirmed Caroline Siarkiewicz as permanent CEO. A year after the appointment of John Govett, it now has a proper leader.
My plea to MAPS is this, you need to get out to the people you listened to last year and you need to be clear about your intentions with regards the dashboard, TPAS and Pensions Wise.
Organisations such as mine, that want to provide a digital service that helps people with retirement planning need to understand how we can build to you and how you can build to us.
We need to know delivery times so that we can work out what we should build for ourselves and what we can rely on you for.
Please MAPS, get out of strategic mode and start talking with us. Tell us how we can help fill the gaps you cannot reach. Tell us what your plans are to use open finance and give us a clear steer on how you want us to get the information needed to help the non-advised, till the dashboard is ready.