Richard Smith has become the popular champion of the dashboard. Here he brings us the latest images of what we’ll see on the dashboard. Don’t get too excited if you are a fan of complex screens but to me, the simplicity of presentation is shocking. We are learning new things about the power of presenting when and what as pensions, at an expected age- perhaps different for all pensions and no mention of pots. That’s going to be shocking to savers and it’s going to upset a lot of expectations.
I wanted to see how a dashboard would illustrate DB/DC and State Pensions alongside each other. Richard has started the video for me where I want to focus- thanks Richard.
The key items for most people will be when the money is due and what the money will be.
The Defined benefit scheme will be , for most people an “inactive” rather than “active” scheme and the estimated income won’t move around much.
The Defined Contribution Pension is likely to be available as a pension thanks to the Pension Schemes Bill requiring benefits to be available at what the dashboard calls the “expected retirement date”, this being three years before the state pension (68 we suppose) so the 65th birthday (we think). Schemes often set up a retirement date as 65th birthday, it had no meaning for a DC member but it does now, this is when the default arrives and has to be rejected if it is not to be paid out,
The second critical box (to me and I suspect to you) is the how much box (estimated income). The defined benefit is again easy, it’s what the benefit was defined to be and it’s the DC equivalent that’s going to be a trouble. Most people think a DC pot is what you get but here the pot has morphed into “expected income” and this is new.
Whereas the DB income is defined, the DC income is based on an Estimated Retirement Income (ERI) that is an actuarial calculation and no more than that. The way it’s worked out is with an estimate from the annuity market and a roll-up from today to 2038. In short it’s not going to be precise but it gives you an idea, in today’s terms of what you’ll get paid.
This is how DC schemes are going to evolve, the Estimated Retirement Income (ERI) will finally depend on the amount in your default decumulation fund and the conversion rate for someone your age and your likely life expectancy. Your provider can get into underwriting and offer you more if you aren’t too healthy. Or, as Nest seems to be doing, they can treat a large group as “social insurance” without regard for health. If you are unhealthy and like to shop around – I’d be surprised if the Nest approach will appeal to your “value for money”.
But there are likely to be a lot of people who look at these ERI from Nest or whatever DC scheme you are in and that is that the income will be a tiny fraction of your pot. That’s because it’s based on the annuity that will be paid you and even though that’s only quoting an income does not go up as you’d expect from a wage, it is unlikely be much more than 7% of your pot. This is going to be an initial disappointment to many. In my experience most people think that a lifetime income is going to be a higher fraction of their pension.
So here are two big links from the Pension Scheme Act (as will be)and the dashboard. An important date when if you do nothing, your pension will be paid you. An important pay figure – the pension you can expect from your pot.
As I have mentioned above, the income that is paid could be more or less than the ERI, if there’s no guarantee on the income then it could be higher, if fully guaranteeing income increases, then considerably less. If you are looking for a chance to get out of your pension then Nest’s version will enable to swap back to pot even after you have start getting income. You can buy annuities for life or have one you can review after a certain number of years.
But while there is going to be an enormous amount of choices if you shop around, what you get from the dashboard is very simply, a date and an amount of income for the rest of your life. This is a huge difference from a pot and this is what is – in pensions terms – a very short distance away.
I do welcome the separation of the monthly pensions into the three types; DB, State and from DC pots.
Some random observations:
Where does CDC fit (Royal Mail only at present but probably others by the time the dashboard will be available)?
The scanning from left to right seems to imply a reduction in certainty from the defined to the speculative. Interesting that the State Pension is in the middle.
I believe the users of the dashboard will likely to see a transfer from the uncertain to the certain as beneficial. This can be achieved by transfers of DC posts into DB schemes in which they are an active member (e.g. certain public sector schemes), but more significantly it is likely to increase the attractiveness of employment with an employer who offers a defined pension promise. Are employers geared up to address this demand?
An interesting question; as I think about it “oldie” I have to include it as a pension based on it being created by a defined contribution , but if we think about what we have now – with DC not paying pensions – CDC looks more like DB. Here is the magic of DC pensions, they can have strong and weak guarantees on income and all be DC pensions – is that a good enough answer?
I have done a lot of talking with Edi Truell about this, he would like to call guaranteed pensions CDC + for this reason. You know I like CDC and pensions backed by capital from DC. I am now adding what Nest is doing, which I can only call “DC pension”. It too looks like CDC +.
I look forward to the time when all pension saving can result in pensions (as well as cash and annuities). Right now I don’t know if pension annuities appear on the dashboard – does anyone know?
Annuities in payment won’t be on the dashboard although deferred ones via buyout will be. Always seemed odd to me to exclude actual pensions from the dashboard – I can’t help thinking the people most likely to go to it are pensioners and they will be surprised they see nothing … Still, from an industry where many pension providers don’t provide pensions I suppose a pensions dashboard that doesn’t show pensions is not that surprising. I should stop being so negative!
From the pensions regulator site – “A relevant member is an active, deferred or pension credit member. Members who are receiving benefits (pensioners) or whose benefits have been cashed in to provide a tax-free lump sum, purchase an annuity or drawdown income are not relevant members. However, members who have taken an uncrystallised funds pension lump sum (UFPLS) should still be considered in scope for dashboards.”
The example looks very simple with a single DC and single RB pension and probably fairly artificial. For those with no DB pension and maybe 5 ‘pots’ from 5 different providers plus a SIPP, how is this going to be displayed in a simple way? If someone has transferred all their old pots into a single SIPP not associated with an employer then how is that shown? If that SIPP has been partially placed into drawdown how does that get displayed? You mention the difference between a flat rate pension and an inflation linked option. How is that shown as a choice (assuming someone has that as a choice?). I can’t help thinking that by the time you take into account real world examples any dashboard is going to be a mess. While that mess will be no more complicated than the ignorant bliss many people feel before they get close to retirement, I’m not sure it’s going to do more than instil a sense of panic.
Peter, we’ve been waiting – some since 2016! If we want to provide the level of detail you are talking about then next steps are needed and providers are going to need to provide targeted support. You can see how hard it is to regulate by reading my recent blog on Paul Lewis , Andy Agethangelou and Charlotte Clark.
We will get there via the dashboard – whatever the problems it has, is and will encounter. People want simple things like to know what they’ve got and where it is.
There are things that won’t appear, Alan Chaplin has pointed out that annuities won’t show , nor pensions in payment. There will be concerns that ISAs don’t but we need to start somewhere and build out. October 2026 is much too late, but we want to get it as near right as we can and can’t bear launching something that has teething problems. I fear that another delay will happen, if it doesn’t – bravo!
I don’t understand the link between a useful dashboard and targetted support? I quite like the Guiide tool – it’s not perfect and can’t cope with partial drawdown but covers a lot, shows retirement projections and allows you to play with the numbers, and do things like consider equity release/downsizing. If that were to be populated automatically rather than the individual having to track down and enter all the numbers manually then it would be very useful. Unfortunately it’s a rare case that people have a very simple retirement situation with a single DB/single employer pension and a tool that can’t cope with that is going to have very little use.