Today marks the end of the FCA’s consultation on pension dashboard rules. This blog has followed the progress of the dashboard since it was clutched from the throttling hands of Esther McVey, to today – where it enjoys the support of both Treasury and DWP and looks likely to become available to consumers either late in 2023 or early 2024.
The dashboard timetable does not anticipate “business as usual till 2025 and that is if the “ambitious targets” set pension providers are met. In this blog, I will not comment on deadlines, other than that this pathetic whingeing of the pension industry when asked to keep to a timetable is a disgrace.
We should aim, as the FCA aim , to deliver a dashboard sooner rather than later, a dashboard meeting people’s expectations , not the pension industry’s demands for new business.
Instead of whingeing, I will request that the FCA recommends that the dashboard drop the fiction that pots turn into pensions and come clean with savers that to manage their retirement savings they need to take advice or guidance and get a pensions lesson from Pension Wise.
Right now we do not have a recognised “default for decumulation” – we could have, it’s what they’re creating in Australia, it is something we should create in the UK. But we have to put our hands up, when it comes to turning pots to pensions, there is no standard way of doing things.
Truthfulness and fairness are expected
I would be surprised if, when asked , the public expectation of a pension dashboard is much more than an online display of pension rights held. That means Pensions when Pensions are payable (State and Defined benefit) and Pots where Pots are saved (Workplace DC and SIPPs).
Clarity and truthfulness trump actuarial projections , but the FCA’s rules still offer a bamboozling spectacle of pots as “money purchase benefits” and pensions as “non money-purchase benefits other than cash balance benefits“.
This is confusing and untrue.
People know enough about pensions to understand that their pension rights are either coming to them as lifetime income or as pots of money . People do not consider the annuity a pot could buy as the value of the pot – not least because they’ve been told that no-one with a pot will ever have to buy an annuity again.
Nobody thinks of pensions as benefits, they think of universal credit and pension credits as benefits, what is shown on the pension dashboard is in their ownership. The sooner we drop “benefits” and move to “rights” the better.
It is better to level with the public now and tell them that what they will see will be a mixture of pots and pensions (the best we can do till we find something better than the current investment pathways).
The FCA rules suggest above that for “money purchase benefits”;-
From the later of 1 October 2023 and the date that a pension illustration has been produced: The value of the consumer’s accrued rights under the scheme, expressed as an annual income calculated using the methodology in AS TM1 but omitting elements which concern future contributions and fund growth.
So we will continue to tell people that their pot’s “money” will purchase an annuity calculated using an actuarial formula that assumes growth in the pot will be zero but will lock today’s annuity rates in. This is more or less the way lifestyle worked till 2015 and shows the total stagnation in thought leadership amongst those who think about DC pension communication.
It is not what happens anymore. Most people’s de-risking targets cash , only 10% of pots are used to buy annuities, annuity broking is a specialist service, generally for sophisticated high net-worth investors.
It would be better to ditch all projected pension illustrations of DC pots and own up to the reality that what people get from their pots is entirely up to them but – unless they buy an annuity – it won’t be a pension. The pot’s projected pension is not an accrued right at all – to use the word “right” is at best misleading, if not an intentional falsehood.
The dashboard is promoting a fantasy that is not the reality of people’s experience facing tough retirement decisions. It is not clear and it is not even truthful. It would be much better to admit that the pot values shown on the dashboard offer people the freedom to spend the indicated amount as they choose.
What is worse, the FCA seem to be promoting compliance with their rules above the Government’s aims for the dashboard, almost in defiance of the good of the consumer.
For the FCA “Evidence of providers’ compliance with our proposed rules would be a direct measure of success”.
For the scope of this document, the FCA considers compliance is more importance than delivering consumer good , to;-
• increase individuals’ awareness and understanding of their pension information and estimated retirement income to build a greater sense of individual control and ownership
• reconnect individuals with lost pension pots
• increase engagement, with more people taking advantage of guidance and financial advice
• enable individuals to make more informed choices at the point of deciding how and when to access their savings
But compliance with the FCA’s rules on projections for money purchase benefits does not lead to an increase in understanding or awareness or the need to get guidance and advice, it leads to the conclusion that these money purchase pots -once found, are going to lead to an annual income based on the purchase of an annuity.
We do not currently have a pension system, we have a system of pensions and pots.
My suggestion is that DC pots are shown as DC pots and that no attempt is made to show what pension they will buy. Instead a statement is made that to find out what the pots offer,
“you should consider taking advice. If you are over 50 you should have a meeting with Pension Wise and consider the investment pathways”.
That sounds weak and it is an admission that the pension dashboard does not have the answer, but it has the advantage of being truthful and clear.
People are fed up with being sold half-truths by the pension industry and by Government. At least George Osborne told the truth. Until we come up with a default mechanism that converts pot to pensions in a more acceptable way than the insurance annuity, we should be honest that DC pensions is still a work in progress.