It’s already a commonplace that the Consumer Duty shifts the obligation on those providing financial services from “treating a customer fairly to treating that customer well“. The Pension Dashboards set out to provide a good customer experience, they will be judged on how they satisfy consumer needs and so will form a pattern and benchmark for the consumer duty. In this article I explore how they are likely to interact with existing channels of advice and guidance and speculate on the impact they will have on people’s behavior, especially as they wind down their working careers.
One of the most intriguing aspects of dashboards is how the FCA will regulate the user interface so that ordinary people get a good experience. There’s a lot of thinking about what defines “good” in this area.
Should a dashboard’s success be measured by its ease of use, the completeness or accuracy of the data – or should it be measured by the good it does? Is there some utilitarian calculator that can tell whether pension dashboards are making the customer feel better or even make them better off?
The usual measure of an online tool’s effectiveness is its capacity to increase assets under management but in a fast ageing population, some pension schemes are already in “net outflow” with money being paid out faster than it comes in. This is particularly the case in the corporate DB market where schemes are shrinking not just due to ageing but due to de-risking as schemes seek to pay out CETVs rather than pensions.
For the past 20 years , there have been two important trends in retirement provision; the first is a reduction in the accrual of defined benefits and the second an increase in saving for wealth. Auto-enrolment has so far been about building up the biggest possible pot of money, defined benefit schemes have turned from a “national treasure” to a treasure chest.
But the pension dashboards will arrive at a time of changing demographics. There is a maximum number of savers joining workplace pensions and we are fast reaching it. Fewer people are joining the workforce and more are leaving it.
The ONS reckon that some 700,000 crystallise their DC pots each year, rather more than the number of new DC savers. The utility from the dashboard is likely to be skewed towards those with multiple (often lost) pots and with retirement on the horizon. For them happiness is increased from the dashboard’s capacity to find pension pots and combine pots and future pensions into a projected retirement income.
So – counter intuitively – the pensions dashboard is likely to accelerate the amount of pension spending rather than saving. The Government is keen to encourage people to “think ERI” or “expected retirement income”, rather than to “think pot” – or “pension wealth”. This is challenge for advisers whose clients are less likely to be dependent on a regular income stream than on accumulated wealth. Will the dashboards shift the dial back towards the traditional idea of a pension – a stream of payments paid till death?
In Australia, the Government’s problem is now less “adequate saving ” and more “adequate spending”. The Retirement Income Covenant is the Australian’s way of getting people into the habit of turning wealth into income. We’ve yet to see whether legislation will get Australian savers to stop hoarding their pension savings but one metric for success in the UK – may be the dashboard’s capacity to improve spending (decumulation).
Just how we project forward people’s pots as prospective income has yet to be finalised (and is subject to actuarial scrimmaging). The Government has made it clear that pensions in payment, including crystallised pension pots, will not be featured on the dashboard. But defined benefit pensions , including the state pension , will be shown on a personalised basis, if they’re yet to come into payment.
There is a little uncertainty about how defined some pensions are likely to be (not least the state pension which lost the triple lock last year and faces an uncertain future in the light of varying estimates of inflation). A number of public sector pensions are subject to the remedy of the Mccloud judgement and projected pensions are of course subject to annual revaluation – which depends on many imponderables. We can be fairly sure however that the defined benefit will be rather less problematic than any pension projection from a pension pot!
But back to the consumer duty. If the point of the pension dashboard (to Government at least) is to project forward pension entitlement future pension income, what does this say about best practice elsewhere?
And what does it say to the management of pension expectations? People’s current expectation is that they must trace their own pension pots, compare pensions using widely different projection systems and manage cash flows using incomplete information – usually with little help but an interview with Pension Wise. That is likely to change with dashboards vying with each other to best manage the “user journey”.
Here the metrics of success may be measure in time spent getting information; “time spent” measured in “seconds” , rather than days. Organisations who cannot properly match the consumer’s data will show they “may have your data”. Such organisations may include the DWP since the national insurance number will need to submitted as a voluntary rather than mandatory field. Steve Webb has pointed out that without a “nino” the DWP will be unable to perform its duty to the consumer and display state pension rights.
The DWP, MaPs and the Pension Dashboard Program have been keen to emphasise that dashboards will not have their own databases. They will be able to display data but not hold data. This distinction means that dashboards will be “introducers”, to use the language of the FCA handbook.
While dashboards may not be able to store personal data and act as a digital data store, they will be able to signpost third party services. This is how they will make their money, as introducers rather than advisers or wealth managers. Digital introductions will be valued by the quality of the services hosted by the dashboard and this is likely to focus around value and cost assessments for pension pots.
The metric for success will be footfall on the dashboard and the capacity to make introductions that satisfy the consumer. The original and founding dashboard, offered by MaPS is promised to be “non-commercial”. It remains to be seen whether customers stick with the state sponsored site (nationalrail.co.uk) or adopt a more racy but commercial site (train line).
We will have to wait and see which model works best for the public but I suspect that what comes out of the dashboard will heavily influence the way we think of the Consumer Duty .