How Nest would like to see the transfer process

Every pension provider dreams of a system where pension pots flow to them as in the diagram above. This blog suggests that the flow of money is dependent on service not fees and that the winners are not those waiting on Government initiatives, but organisations embracing technology solutions that make pensions open.

We are currently going through a lull as we sit in the eye of pension dashboard’s storm. One day in the next few weeks, the Government will announce what next for a project that has lurched from one setback to another. A new dashboard Tsar – perhaps a full-time CEO – for the Pension Dashboard Program, a reinvigoration of the relationship with technology partners, perhaps something to get a weary pension tech sector excited.

Writing in Financial Adviser, Equisoft’s (aka Altus’) Nick Meredith tells us

The dashboard when launched will for the first time allow individuals and their advisers to instantly see all their pension in one place. Although not a stated objective, it is generally accepted that this will trigger much demand for pension consolidation, creating a bow wave of pension transfers.

But here’s the rub. While the time to see your data on a dashboard is measured in seconds, the time to combine your pension pots is measured in days, weeks and months.

And while technology strives to create open standards that speeds things up (Texx, Via Nova et al), the pension industry has taken to throwing red and amber flags that frustrate and slow down. I appreciate that this flag-throwing is conducted with the best of intentions, but it means that pension consolidation, on an industrial scale is not happening.

And of course, it has to happen if we are to see a solution to what is called the “small pot problem” where our fractured pension saving languishes awaiting the adoption of one of the ideas of the small pots working group.

The problem is someone else’s problem

When I talk to people about fractured pots, they look wistfully to “industry solutions”. The dashboard will sort it – Origo will sort it – we’ve got our day jobs and this is someone else’s problem.

Of course, the problem sits with those least able to sort it, the consumer.  So when a consumer focused organization like Pension Bee or some of the insurers who are now making a move to help people consolidate their pots, comes along, they are considered predatory. They are predating on consumers who are vulnerable because their is no industry driven solution, no “open pensions”.

And part of this problem is that there is neither human or financial resource committed to making consolidation easier. If Pension Bee did not have to battle on behalf of their customers to get money from A to Bee, their costs would be lower and these could be passed on to customers. Criticizing Pension Bee for higher costs than workplace pensions ignores the fact that workplace pensions are typically derelict in their support for savers combining their pots.

For many people, the extra cost of using a consolidator is VFM and for good reason. The more you save with a consolidator, the lower your charges (most have tiered charging scales) and the comfort of having all retirement savings under one umbrella is worth the extra cost in fees.

Since no one has the least clue about the actual performance of their pension pots, service not fees is currently the driver for choice and most transfers move in the direction of a trusted service, transfers are moving to the consolidators. VFM= quality of service , for the consumer with fractured pension pots.

Pension Bee and a few others have made our problem , their problem – and are getting rewarded for it.

A long term solution

No one expects the first iteration of the VFM framework to help consumers combine pension pots. The Framework is being pointed for the moment at employers and trustees, not towards savers and their advisers.

Talking with Equisoft , Via Nova and others in the tech space, it is clear that there is a shift away from centralized services such as Origo, to a transfer system based on open standards. This should both improve speed and cost. The organizations that are embracing these open standards are likely to see further improvements in service and incur lower costs, bringing their charges down.

Meanwhile, organizations that continue to wait for a “deus ex machina” by way of a pension dashboard or a Government imposed small pot solution, will find flows working against them.

In the absence of a top-down solution, it looks to me that bottom up technology that empowers individuals to do things for themselves will win. That is , of course, so long as the consumer is given that chance.