The Digital Pension - The Smart Pension View

Pensions might not be the first thing to spring to mind when we think about the effects of digital transformation or be high on the list of things that consumers worry about on a day-to-day basis. However, just as new technology is rapidly changing the way the entire financial services sector operates, it is also creating a structural shift in how pensions are managed and delivered. In terms of relevance to the consumer, now that auto enrolment has embedded into our everyday lives, the biggest change on the horizon is digital-led and comes in the form of the new Pensions Dashboard.At the end of last year, the OECD (Organisation for Economic Co-operation and Development) published a report, ‘Technology and Pensions’, which looked at how fintech is transforming the way the pension industry operates. It identified that the impact of digital innovation within the financial services sector works in two ways: improving customer engagement with their own pensions, while helping providers in the marketplace to streamline the efficiency of their internal processes and to improve risk management as well as pension design and delivery. The report also stressed the importance for regulators of ensuring that customer protection is not overlooked in an increasingly data-driven and digital world, while highlighting how fintech applications are increasing the accessibility and possibility of investing in pensions to a broader consumer base.

For UK consumers, the most prominent example of this innovation is the proposed Pensions Dashboard. The Government launched its plans for this back in 2016, saying that every pension provider will be expected to share its data with customers in a way that shows them all of their pension contributions in one place. At the same time, it pointed to evidence from the Office for National Statistics (ONS) that the average British worker has 11 different jobs throughout their career – so potentially 11 different pension pots, plus the state pension, to consider and consolidate. Last October the Department for Work and Pensions confirmed that it will take responsibility for making the Pensions Dashboard happen, an announcement that was welcomed by the industry. Creating and developing any such technology for a broad market naturally requires a significant financial commitment. It obviously requires a deep understanding of how software itself is constructed along with a knowledge of the relevant regulatory and legislative framework. The investment needed for something like the Pensions Dashboard will only pay dividends if the end product blends these requirements into something that is easy to use not only for the individual consumer but also across the industry as a whole. Part of the issue will be how to display the different types of pension: Group Personal Pensions (GPP), Defined benefit (DB), Defined contribution (DC) and auto enrolment (AE) pensions all need to be pulled together in a way that makes sense for the end user .Blockchain will undoubtedly have a role to play in the final solution. Get it right, though, and the benefits should be huge. Delivered properly, the Pensions Dashboard will break new ground in giving workers a better – and immediate - understanding of the real financial shape of their retirement, as well as motivating them to save for that retirement and to proactively plan better for it.

It could also help encourage competition and clarity – further benefits for consumers. Our own enthusiasm for the Pensions Dashboard goes beyond just what it can do in the immediate term. The total is greater than the sum of the parts: it is also something which has the potential to accelerate innovation right across an industry which has seen little dynamism for decades. As an example, the Pensions Dashboard will offer providers the opportunity to show quick, accurate and real-time SMPI (Statutory Money Purchase Illustration), which even on its own will be a huge benefit for consumers. However, that information will also then enable the consumer to consider consolidating their pension pot and could lead to easy access to regulated services like professional advice and planning. Additionally, it will help empower individuals to take care of their own financial future, weaning many away from a reliance on what will be an insufficient state pension – something that would mark a big shift in consumer behaviour and attitudes. Another aspect is the £400m in pension contributions which the Department for Work and Pensions (DWP) says currently sit lost, unclaimed or unused, which hundreds of thousands of workers have earned but either don’t know about, have lost the paperwork for or don’t have the time to track down. Presumably the Pensions Dashboard will help reunite these contributions with their owners, which can only be a good thing. Allied to this, our own opinion is also that transparency about pension management charges – details which are very important to enable people to make the right decisions to maximise their retirement income and which can vary enormously across the industry – should be an integral feature.

A key issue is who will pay for the costs involved in meeting the challenges of delivering the Pensions Dashboard. Funding is a significant issue for this platform, just as important as governance and functionality. For example, if the Government decides that all pension providers have to supply information to it, should those providers be paying for it or should the Government itself be footing the bill? Will a levy be introduced onto workers’ contributions to finance the project? If the private sector is going to be expected to fund it, should advertising be allowed in return? As in Sweden, where there has been a dashboard for the last 14 years, will it be a public/private partnership? Another big issue is that of political intervention: the Government needs to produce a platform which helps to make sure that consumers are protected and get the right advice as technological advances open up new possibilities in the future, yet one which isn’t rendered inefficient by the constraints of regulatory red tape. Encouragingly, in a broader context the OECD report said that the Government was on-side and making substantial efforts to support the development of not only the Pensions Dashboard but fintech in Britain as a whole. It acknowledged that the Financial Conduct Authority (FCA) here in the UK is unique in having the promotion of competition in financial markets as part of its mandate, something that can only be good for British consumers.However we feel it’s unlikely the 2019 deadline for the next phase of the dashboard will be hit. We hope we’re wrong, but there is a long way to go before we get to that point.