The proposed pension dashboards framework announced by Pensions Minister Guy Opperman, provides a major opportunity to enhance consumer understanding of their savings, reduce financial exclusion and significantly improve the UK’s savings ratio. The workplace pensions community should be especially well placed to benefit from this approach.
While the minister explained that the Open Banking Implementation Entity cannot be used to deliver Pensions Dashboards, there is still much that can be learned from the work it has done. I see this as a great opportunity to build further engagement with the ten million plus consumers who are now saving for retirement as a result of auto enrolment.
Open Banking already has arrangements in place to address governance and funding, ownership of customer data, customer consents, liability, legal & regulatory framework technology, implementation and monitoring. We could learn a great deal from these.
If we can deliver information on consumers’ long-term savings, side by side with their day to day budgeting and banking, it will help them see their savings in context. I understand a recent pilot where Lloyds started showing Scottish Widows pension holders the value of their pensions side by side with their online banking saw a dramatic increase in member engagement with the pension scheme.
Each year millions of consumers waste billions of pounds in excess banking fees and charges. In the vast majority of cases these are for, effectively, very expensive temporary periods of credit. Technology to make it easy to warn customers if they are likely to incur such charges and help them avoid them by better money management has existed for well over a decade, yet UK banks have for the most part not deployed it, perhaps because such charges make a massive contribution to their profits.
Every pound spent on excess bank charges is a pound that cannot be spent on savings and investment. By leveraging Open Banking capability, alongside Pensions Dashboards we can introduce new ways for those in auto enrolment and other workplace pensions schemes to top up their regular savings.
Many established adviser technology suppliers like Intelliflo, Moneyinfo and True Potential as well as other firms who do not normally supply to UK advisers like Experian-owned Runpath, Envestnet Yodlee and US second generation aggregation specialists Quovo, who recently acquired UK Account Information Service Provider regulatory permissions, are well placed to help advice firms and pension providers deliver these enhanced services. The technology these firms and others can provide can help turn billions wasted on banking charges into pension contributions and other savings.
Perhaps the most active debate in the pensions industry currently is what constitutes value for money. There is no question that by far the largest influence on the value of a saver’s funds at retirement is how much they actually put in. The impact is far greater than underlying performance or fund charges. I therefore believe that the pensions that represent the best value for consumers are those that actually help them save more.
In our Making Savings Affordable research paper earlier this year, FTRC identified that consumers need to be given new ways to engage with savings. Delivering Pension Dashboards that not only increase member engagement but can play a real role in extending financial inclusion can genuinely help enhance the quality of consumers lives.
This can be extended to include forms of micro-savings that can enable consumers not only to make small but frequent additional pension contributions but also enable them to build up a short-term cash reserve to protect against the financial shocks that so often lead consumers to take expensive credit and cause them to stop regular savings.
Overall the proposals announced yesterday are a massive step forward for the pensions industry. The commitment to multiple dashboards and delegated access by advisers and others are important victories for those, like me, who have argued that competition and advice both have an essential part to play.
Creating a structure that will expect large pension providers, both contract and master trust, to deliver information to make dashboards a reality within at most 18 months, allowing smaller and more complex schemes more time to join shows pragmatism and good old common sense.
While it is concerning that the Single Financial Guidance Body dashboard is intended to be delivered before commercial dashboards can be allowed it’s important to recognise that the vast majority of things announced this week will bring huge benefits to consumers and their advisers.