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A recent Briefing Note from the Pensions Policy Institute (PPI) explored the difficulty in estimating the number and total value of ‘lost’ pensions in the United Kingdom (see “Further Reading” below). With the average person now having 11 jobs over the course of their lifetime, the PPI found that the number of people amassing multiple pension pots is increasing, as is the incidence of losing track of some of those pensions over time.
Currently, however, there is no clear definition of what constitutes a ‘lost’ pension, when compared with a ‘dormant’ one, which results in wide variation in the value of these lost pots. In addition, attempts by pension providers to reunite consumers with their lost pots also vary widely in their effectiveness, which at worst could then leave those individuals more reliant on the State Pension and means tested benefits.
In terms of quantifying the size of the problem, the PPI’s Lost Pensions Survey found that there are currently over 800,000 lost pots with a combined value of nearly £10 billion, whilst in 2015/16, the free government Pension Tracing Service (PTS) , which helps reunite people with their lost pensions, dealt with 169,000 tracing requests (Source: Department for Work and Pensions (DWP)).
Using the PTS is fine if you know that you have lost a pension. The problem is compounded if you have forgotten about one or more of these over time, as a result of job changes and/or moving house.
"In an ideal world, consumers would be able to go online and see all of their pension pots (and their providers) securely gathered together in one place. This would enable them to keep track of all of their retirement savings over time, as well as their current value. "
The aim of the Pensions Dashboard is to turn that ideal into reality.
What has happened?
Initially outlined in the 2016 Budget, a Pensions Dashboard Prototype Group was subsequently launched later that year, involving sixteen pension providers and managed by the Association of British Insurers. Following the successful demonstration of a prototype during 2017, the DWP assumed lead policy responsibility for the dashboard, and outlined plans for a feasibility study to examine areas including different delivery models and the compulsory participation of all pension schemes.
The feasibility study was expected to be released in March 2018, but nothing materialised. Fears surrounding the DWP’s ongoing commitment to the project increased over the summer and led to an online ‘don’t scrap the dashboard’ petition that attracted over 125,000 signatures in three weeks (Source: 38degrees.org.uk).
Thankfully, those fears proved unfounded when the DWP finally released their feasibility study in early December 2018, simultaneously launching a consultation seeking views on a range of questions relating to the creation of pensions dashboards, which closes on 28 January 2019 (see “Further Reading” below).
In support of the pensions dashboard concept, we are currently working on our consultation response. At this stage, however, key items within the feasibility study include the following:
- There will ultimately be a choice of dashboards, with the cost of delivery met by the pensions industry;
- Initially in 2019, however, a ‘non-commercial’ dashboard will be launched and will be hosted by the new (and still to be officially named) Single Financial Guidance Body (SFGB);
- The SFGB will also be required to convene and oversee an industry delivery group to enable successful implementation of the dashboards;
- Consumer protection and the safeguarding of data will be top priorities;
- The government is prepared to legislate to compel pension schemes and providers to submit their data for the dashboards; and
- Steps will be taken to ultimately provide State Pension data via the dashboards.
The DWP’s vision is that, “Putting individuals in control of how and when they access their data…should increase consumer engagement…a greater sense of ownership of their pensions [and] encourage more effective planning for retirement.”
Whilst security of the data will be paramount in ensuring that consumers have confidence in the robustness of the dashboards, the accuracy and reliability of the data itself will also be key in maximising their success. If the provision of data does become mandatory, lids will be lifted on the quality of pension providers’ record-keeping and back-office systems, and the exercise will indeed be more challenging for certain types of pension scheme (for example, ‘defined benefit’ arrangements).
Finally, the ability to view all of an individual’s disparate retirement savings in one location could precipitate an increase in the consolidation of dormant or previously lost pensions into one ‘wrapper’, be it an existing pension arrangement with the most cost effective charging structure, or a brand new arrangement to facilitate a particular investment objective. This includes, for example, opening a bespoke SIPP or SSAS for consolidation purposes in order to enable the funding of a commercial property purchase.
As with any decision to transfer pension funds, there are a number of aspects to carefully consider and it is usually wise (and in some cases, legally necessary) to first take advice, prior to any transfer occurring. The “Further Reading” section below includes one of our briefing notes on the subject.
The aims and objectives of the pension dashboard concept are laudable and long-overdue. In principle they provide a positive way forward for consumers to reclaim their ‘lost pots’ and plan for funding their retirement with a far greater degree of certainty. Much work lies ahead, however, and it is essential that the pensions industry throws its full weight behind making the dashboard project a success and ensuring that the data provided is accurate secure and complete, (including full details regarding the State Pension, as early as possible).