Written by Kevin Hollister, Pensions Actuary & Founder of Guiide & Guiide DB
Later this year, providers will begin to connect to a Pensions Dashboard “ecosystem” designed to improve engagement in pensions. The aim is for all pension information to be displayed in one place.
In the near future, it is hoped that savers will be able to simply type their national insurance number into a dashboard and then see information about all their pensions. This is a great aim and an excellent start in helping engagement.
However, we believe there will be two issues with the dashboard proposal, which will reduce its effectiveness in practical terms.
Firstly, retirement is no longer just about pensions, and secondly, consumers need to know if the resources at their disposal are sufficient for the remainder of their lives.
What is the Pensions Dashboard?
The UK Government has said that a Pensions Dashboard will “enable millions of UK savers to access their pensions information at the touch of a button”.
If the dashboard works as advertised, it will include information about pension pots, final salary pensions and the state pension. A pension dashboard will enable consumers to see the current value of their pensions, discover administrative details about their pots, and assess their estimated income from these pensions in retirement – all in one place. We agree this will be a huge leap forward.
It is hoped the dashboard will be popular and well-used, boosting engagement. The Pensions Dashboards Programme (PDP) commissioned research which found that 57% of respondents “would use dashboards if they were available now,” with the likelihood increasing among people who had not yet accessed their pension and rising to 80% among people with three or more private pensions. The research also found that 81% of respondents had one or more private pensions in addition to the State Pension. “This means that a large majority of people have multiple pensions which they would be able to view in one place on a dashboard,” the PDP wrote.
The largest providers with more than 20,000 active and deferred members must connect to the Pensions Dashboard by August 31, 2023. This deadline will then be followed by phased introductions for smaller providers, with all pension firms connected by 29 February 2024.
There is no doubt that the Pensions Dashboard is an important innovation that will bring benefits to millions of people in understanding where their pensions are.
However, a Pension Dashboard alone can only do so much and the information provided from it will not address two key practical areas for those planning retirement.
- Retirement is no longer just about pensions
The days of downing tools, stopping work, and disappearing into retirement with a single pension plus the State Pension to support you for life have largely gone. Today, many people ease into retirement, continuing to work part-time whilst drawing a pension. Perhaps they chose to, perhaps it is a necessity.
The Pension Dashboard will never be able to address the complexities of combining a pension with other forms of income, an issue that non-advised retirees must address themselves.
The dashboard will also not provide information on other forms of retirement savings outside of pensions. Many people, for example, regard their house as something that will contribute to their retirement income. Clearly, the pension dashboard will not be able to pick up data relating to funds which may be accessible through equity release or downsizing.
Other retirees may be planning to rent out a property for income or have different forms of savings, such as ISAs, again all of which will also not be included.
A true retirement dashboard must include all aspects of a person’s finances that will be used for retirement income, not just the parts which are traditionally classed as “pensions”.
- Dashboards info cannot on its own map the road ahead
Once a saver can see all their pension information in one place, what’s next?
Answering this question is simply beyond the scope of the Pensions Dashboard, but when engaging with their pensions, what people really want to know is whether they will have enough retirement income to fund the lifestyle they want.
A dashboard is a useful way of gathering information, but it will offer little practical value to someone that wants the answer to this question. Understanding how to convert all their pension and savings pots and pension and non-pension incomes into one total after tax retirement income to answer this question is extremely difficult for the non-advised.
Non-advised savers must get access to guidance tools that show them how they can use what they have, to get what they want after tax, and not run out of money in retirement.
Building a more practical retirement dashboard
Dashboards should incorporate everything savers put towards their retirement income, with values updated live and fed directly into real-time calculations. When a dashboard incorporates all financial information, it can provide a true picture of retirement income.
People who want to truly understand their retirement savings will need to use free guidance services such as Guiide, which provides this type of retirement dashboard, helps build savers a retirement plan and, most importantly, tracks it over time, as their pot values and other factors change, to avoid running out of money.
In the last year, over 100,000 people entered drawdown without advice and started to take funds from their pension pot. Millions of people plan to do the same when they retire.
These people need real-life practical support to help them manage retirement. The Pensions Dashboard is a great step in the right direction, but cannot provide everything needed for planning a financial future. It is only when this type of help is widely available to pension savers through providers, schemes, employers or government that the right level of support for the unadvised will be in place.