Written by Tom Selby, head of retirement policy at AJ Bell
The industry and government have had years to prepare for pensions dashboards. The decision to push mandatory connection to dashboards beyond the next general election is hugely disappointing and people will understandably now question whether they will ever be created at all.
Having been led up the dashboards hill multiple times by the government, savers and the pensions industry are now back at the bottom trying to figure out what the future may hold.
Pensions dashboards have the potential to make life much easier for people trying to locate and ultimately combine retirement pots built up over the course of their working lives. Given research suggests the total value of ‘lost’ pension pots already stands at over £26 billion1, simplifying the process of finding these pots could be a game-changer for savers. Over time, dashboards could also act as a valuable engagement tool – but only if they are ever actually created in the first place.
AJ Bell has always said that the priority is ensuring dashboards are safe and useful for UK savers, with as many people’s pensions as possible connected to the service. Rushing to launch dashboards without proper testing or with gaping holes in the data would clearly be foolish, but this news is still hugely disappointing.”
Dangers of half-baked dashboards
While we are yet to see the detail of the government’s latest plans, the suggestion pensions dashboards could be made available to the public before schemes are required by law to connect implies officials are considering launching dashboards on a voluntary basis. This would presumably mean the dashboards people can access at this point would contain only the information of schemes who choose to provide it.
The major risk of this half-baked approach is that people will end up making retirement decisions based on partial information which they might not otherwise have made if they had a full picture of all their pension pots. Given how important trust will be if and when dashboards are launched, and how fragile consumer trust in pensions more generally can be, we would urge extreme caution in going down this road. At the very least, any decision to launch partial dashboards needs to be supported by robust consumer testing and clear warnings about the limitations of the data available.
Savers and providers now need absolute, cast-iron clarity over the dashboards timeline. Any more flip-flopping over the timetable or structure of the reforms could cause fatal damage to confidence in the project.”
Things to consider when combining your pensions
There are plenty of reasons why combining your pensions with a single provider can be a good idea. Most obviously, a single retirement pot is much easier to track and manage than having various pensions with different providers.
You could also benefit from lower costs and charges, increased income flexibility and more investment choice by switching provider.
Older pension schemes, for example, often charge more than modern pensions, while plenty of workplace schemes don’t offer a full range of retirement income options or restrict your investments to the firm’s own in-house funds.
Before transferring any old pensions, you should check there aren’t any valuable benefits attached which you may lose,or exit charges that will be applied. Your provider should be able to tell you if this is the case.
The impact of reducing your pension charges can be significant, particularly over the long-term. For example, let’s take two people, Gemma and Chris, who each contribute £2,000 per year to their pension and enjoy 5% investment returns before charges. However, while Gemma pays just 0.5% in charges, Chris pays a 1% charge.
After 30 years, Gemma could have a fund worth around £127,000, while Chris’ pot has grown to around £117,000 – a full £10,000 less.
If you do decide to consolidate with a single provider, assuming these are ‘defined contribution’ pensions – where you build up a pot of money which you can access from age 55 – the process should be relatively simple. Note that the minimum age you can access your pension is set to rise to 57 in 2028.
If you have a ‘defined benefit’ pension valued at £30,000 or more, you will need to take regulated financial advice before transferring. Where defined contribution savers build up a pot of money, defined benefit schemes provide an income for life from a set date, usually based on your salary and the number of years you have been a member of the scheme. Lots of providers will only accept a transfer from your defined benefit scheme where a financial adviser has recommended you do this.
Consolidating pensions pots should be relatively easy. You’ll just need to choose a provider with whom you want to consolidate your pensions and get the details of the pension or pensions you want to transfer over. Once you’ve given the relevant details to your new provider, they should do all the legwork for you.
You will then need to choose where to invest your pension. When doing this, make sure you are comfortable with the risks you are taking, have a diversified selection of investments and, crucially, keep your costs as low as possible.
Many firms offer a choice of diversified funds designed to meet different risk appetites if you aren’t confident choosing your own investments.
The Pension Tracing Service is a useful tool to locate missing pensions, and some providers may also be able help.