The Pensions Dashboard: 3 challenges for providers
The challenges pension providers face in supporting the pensions dashboard are immense. As part of ICAS’ Challenging Conversation about pensions, Liz Duffy highlights three key challenges they face.
Join Sir Brian Souter and a panel of pensions experts on the evening of Tuesday 11 September to debate the need for a change in approach to pension policy-making by current and future UK Governments.
The story so far
The pensions dashboard could be key to encouraging people to save for retirement by helping savers understand what they have and how much more they must save.
For the benefits of the dashboard to be realised all pension providers need to take part.
A Prototype Dashboard has been built and tested, but more work needs to be done to make it accessible to all pension savers.
The key element underpinning the dashboard is the pensions data of individuals. The dashboard will be populated with data from pension schemes, mostly, but not exclusively, via pension providers.
For the benefits of the dashboard to be realised all pension providers need to take part; if they don’t, public trust in the dashboard project could be undermined.
The Department of Work and Pensions (DWP) wants pension providers to participate in the project voluntarily for the time being; as legislation to require participation and deliver a regulatory framework for the dashboard is not possible in the short-term as parliamentary time is at a premium.
Participation in the pensions dashboard will create three key challenges for pension providers.
1. Multiple and legacy systems
Most pension providers operate more than one IT system to administer the business on their books.
The existence of legacy systems will make it immensely challenging to populate a dashboard.
Due to their different features, different product types are also administered on separate systems.
Many providers have acquired legacy books of business, often through acquisitions. This could comprise multiple software applications on several mainframes, some with very old technology and programming languages.
The existence of both multiple and legacy systems will make it immensely challenging to populate a dashboard.
These systems generally do not ‘talk’ to each other and although it is not necessary that they do so it is critical that they can ‘talk’ to the dashboard.
Multiple systems feeding into one dashboard will require significant IT resource to convert the programmes into a standard format.
2. Cost of cleansing and protecting data
Most pensions providers administer a range of products. These can be schemes or individual policies and range from older-style products, such as defined benefit (DB) schemes, to more modern arrangements, such as auto-enrolment savings.
To provide the user with the complete picture, every policy must be capable of being incorporated into the dashboard with all the data fields populated.
This presents pension providers with a significant challenge, particularly for legacy pension schemes and contracts hosted on old IT platforms.
Data cleansing is an issue for pension providers.
A data cleanse could potentially be a big and expensive exercise.
Not only must all the data fields be populated, but the data must be correct. Incorrect data will lead to users making the wrong decisions and undermine their trust in the dashboard.
A survey conducted by ITM found the degree of missing or inaccurate data held in respect of pensions set up prior to 2000 was a significant concern, particularly for DB schemes.
More recent schemes also had data issues, but generally it was the older schemes which had more inaccuracies.
For all contracts, but particularly the older-style contracts, a data cleanse could potentially be a big and expensive exercise. Keeping the data up-to-date is another factor to consider.
Pension providers face the not inconsiderable challenge of ensuring that all the data for every member of every scheme and every policy is formatted to meet the standard dashboard format.
Again, this will require resources.
Many policies are flagged on the systems as ‘gone aways’. These are contracts where the policy-holder/member can no longer be traced.
There are options open for pension providers to trace individuals, but they are expensive and resource intensive.
Data protection is high on the agenda of pension providers and third-party administrators now that the General Data Protection Regulation (GDPR) is in effect.
Participation in the dashboard could mean expensive legal advice on data protection
While pension data will not be held by the dashboard, it will be delivered to it when a saver wishes to check their pensions.
Voluntary participation in the dashboard could mean expensive legal advice on data protection for the industry but a statutory requirement to participate, accompanied by a framework for data quality and security standards, could make it easier (and cheaper) for pension providers to comply with their responsibilities under the GDPR and provide good-quality information to the consumer.
3. A short timescale
The dashboard is due to launch in 2019, although an element of phasing will be necessary as it will not be fully populated by that date.
The work required to populate the dashboard is a massive undertaking for pension providers.
The Department of Work and Pensions (DWP) has started thinking about how this may be achieved:
- Should the dashboard be populated with newer-style products first (possibly easier technically) or older-style products? Targeting newer-style products first may make it easier but still needs to be done in a relatively tight timescale, or
- Should the dashboard aim to provide information to those nearing retirement or younger users? Focussing on those close to, retirement will be more complex as these individuals are likely to have several pension pots with different providers.
Any method chosen will impact on pension providers.
Phasing aside, the work required to populate the dashboard is a massive undertaking for pension providers both in terms of their own resources and external costs.
What are the benefits of the pensions dashboard?
The pensions dashboard will be a free to consumer online tool which will provide individual pension savers with a view of all their pension arrangements across all schemes and providers.
If the pensions dashboard achieves the desired result it will encourage people to take action to plan for their retirement.
This will allow individuals to find any lost or stranded pots, enable them to estimate their retirement income and establish any gap between current savings and the amount required to meet their needs in retirement.
If the pensions dashboard achieves the desired result it will encourage people to review their pension savings and take action to plan for their retirement.
As a result, people should be better prepared financially for their retirement.
Government fully committed
In December 2017, Guy Opperman, Minister for Pensions and Financial Inclusion, and the DWP committed to publishing a report setting out a roadmap for completion of the dashboard by the end of March 2018: the report is outstanding.
The dashboard, however, remains a key feature of the UK Government’s strategy to encourage people to save more for retirement; the Minister and the DWP are fully committed to it.
Nevertheless, the pressures on pension providers will be considerable.