Pensions Dashboard – let’s make sure we get things right
- Pensions Dashboard must overcome many hurdles and first requirement is to ensure accurate records.
- Legacy schemes will take years and cost huge sums to convert to electronic format and this has delayed Dashboard project so far.
- Trying to get all old pensions included on a Pensions Dashboard on day one is doomed to failure.
- Pensions Dashboard could start with auto-enrolment and State Pension first – but Regulators must ensure pension records are correct.
- Even recent auto-enrolment data are full of errors and there are no official requirements to report on accuracy or error corrections.
I welcome the news that the Prime Minister has given official endorsement of the development of Pensions Dashboards, which can help people keep track of all their pensions in one place. Having a proper picture of how much your pension savings are worth and what you might receive in retirement, can be an invaluable tool in planning for later life. But there are many hurdles to overcome before the ideal of a fully-functioning dashboard can be realised.
Legacy pensions are not held in electronic format so will take years and cost huge sums to add all old pensions to a dashboard: There is a danger of making the best the enemy of the good. The whole Pensions Dashboard project could be derailed and indefinitely delayed if the industry or the Government requires all legacy pensions to be put onto the system from day one. Old pension records are not in a format that would allow electronic handling. To force legacy schemes to do this would result in huge costs (usually passed on to customers) and long delays.
Legacy pensions could be better handled initially by mandating a standard format for written statements: Rather than forcing all legacy providers to try to upload their past records onto an electronic standard database, a mandatory requirement for a standard ‘pensions passport’ which gives everyone a statement that shows their pension information in the same way, using consistent language, will help individuals or their advisers to load the information onto a personalised dashboard themselves. This could be achieved more quickly and with less cost.
More realistic to at least get Dashboard started with auto-enrolment records and State Pension: Rather than waiting for all legacy schemes to be ready for a Dashboard, it would be more practical and sensible, in my view, to begin with just the pension records of auto-enrolment. These records, which only started since 2012, relate to much more modern pensions which are more readily transferred into a common electronic database. Together with the new digital State Pension forecasts, putting auto-enrolment pensions and the State Pension on a Dashboard could be achieved much more quickly.
This would be of greatest help to younger generations who will not normally have lots of legacy pensions from long ago: By focussing first on auto-enrolment, the pensions industry could provide a proper Dashboard for younger workers, who will be able to see all multiple pots in one place. For those with much older pensions, the legacy records could be added over time.
But another hurdle with a Dashboard for auto-enrolment pensions is that these records are riddled with errors and need to be cleaned to ensure accuracy and reliability: Before a reliable Pensions Dashboard project can succeed, even just beginning with auto-enrolment pension records, it is essential that the industry makes greater efforts to check the correctness of the contribution data they receive. At a recent industry gathering, providers confirmed there are significant numbers of errors in the auto-enrolment contributions data, that records are not necessarily reliable and that a clean-up exercise would help to improve accuracy. Regulators have not demanded that pension schemes regularly reconcile records or spot-check for accuracy of contributions. Indeed, many pension providers do not even have the data they would need to do such checks, as they need to collect pensionable pay information but that is not automatically provided. Manual loading of payroll information onto spreadsheets inevitably contains human error (incorrect names or addresses or inaccurate National Insurance and tax details) which result in wrong records.
For any Pensions Dashboard to be meaningful, it needs to have accurate data. Before any legislation or expenditure on developing the Pensions Dashboards, pension providers and employers could start cleaning up data errors. Requirements for robust processes to ensure records are right, and asking employers, payroll firms or providers to check accuracy and report on it. Some of the larger MasterTrusts have confirmed they know there are errors and have started to make such checks. In one case, 50% of the employers they checked, were paying incorrect contributions because they had misunderstood how the tax relief worked. This could have been left undiscovered for much longer, resulting in problems for employers, for staff and, of course, undermining confidence in a Dashboard. With MasterTrust consolidation coming over the next year or so, a data-cleansing exercise is hugely important.
Data accuracy must lie at the heart of any attempt to introduce a useful Pensions Dashboard: Of course, the data records for legacy schemes are also likely to have many errors, but the process of checking and reconciling will be far harder, the longer the time lag between payment of contributions and error checks. Annual checks or reconciliations should become standard.Whether it is for legacy schemes or just auto-enrolment, having reliable and secure data is central to confidence in any Pensions Dashboard project.
The pensions industry and Regulators could be working on data cleansing immediately, without need to wait for more information on the Dashboard project. I hope they will.