The Pensions Dashboards Project – “tech-charging” employee pensions disclosure
The Government wants to bring about a step change in people’s awareness of their pension savings. The implications for employers will include the cost of compliance, and the risk of claims or at least disappointed employees. Industry calls to start small have so far not been heeded. The consumer perspective clearly carries more weight than the concerns of employers and administrators.
What are pensions dashboards?
The DWP proposes to create a new structure that will give individuals electronic details of all their pensions in one place. The first dashboard will be run by the Money and Pensions Service but banks and insurers will be able to offer them too. The political aim is to encourage saving by empowering people to find and view this financial information. Individuals must be given details of all pensions that are not yet in payment, including company pensions (public and private sector), personal pensions and the State pension.
The DWP has issued a Consultation on the draft regulations to achieve this.
It sounds like a great way to clear the fog that surrounds pension saving but it’s a hugely ambitious project on a number of levels. Just building the infrastructure is a massive task. Among other things, it more or less involves a national identity verification scheme.
When will this bite?
Like with auto-enrolment, the requirements will be phased in, biting on the very biggest schemes and master trusts first. Schemes with 1000+ active and deferred members will have to connect by September 2024; 3% of schemes by number, these account for 99% of active and deferred members. By 2025 all schemes with 100 actives and deferreds should be connected. Smaller schemes will follow.
What will this mean for employers?
There are going to be challenges. In practice the burden may land on third party administrators – with a likely increase in costs.
Every “find” request put in by anyone will be bounced off every pension arrangement in the country. Administrators will have to be geared up to check if there is a match with one of the scheme’s members or account-holders.
- If it’s a “Yes” the dashboard will then request information so the individual can “view” data about the scheme and their own benefits. The scheme will have a short turnaround time to comply, meaning the data will have to be automated.
- If it’s a “Maybe” (it won’t always be clear) there’s a process to follow – data protection is a key concern.
What “view” data has to be provided?
It differs according to the type of benefit. For money purchase benefits, the member must be told the amount of their ‘pot’ plus an estimate of the income it would produce in retirement. For defined benefits, it is the pension accrued to date. And for active members – paying contributions or earning pension accrual – a projection is required too. Pensions admin wasn’t built for that on an annual, scheme-wide basis.
Pensions are complicated and the data will have to be dramatically simplified for non-specialists to be able to grasp it. Projections based on future inflation or future investment returns will have to be on industry-standard bases, in line with guidance to be published by the Pensions Regulator and the Financial Conduct Authority.
There’s a risk that the information will be wrong because of error. There’s a much higher likelihood that what these pensions produce in the real world will be quite different from the amounts illustrated. The ‘hard figures’ will depend on events that happen – member circumstances like retiring early or late, as well as economic circumstances.
The bottom line?
It’s hard to square the circle if the information has to be both simple and reliable. A “find only” dashboard would be a more realistic place to start. Employers might want to start thinking what this all means for them. The Consultation closes on 13 March.
Read Anna’s article in Reward Strategy.
The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.