Pension providers, master trusts, banks, consultants, fintech and other players all want to own the customer journey and be their preferred point of entry to the rich new functionality that technology will offer in the future. To download a PDF of the round table supplement, CLICK HERE.
Those that succeed in the development of open finance and the pension dashboard will be ahead of the game in making the most of the revolution set to hit the industry in less than two years. That was the view of delegates at a Corporate Adviser roundtable debate on the launch of pensions dashboards last month.
Where to consolidate
The decision of where to consolidate was more likely to be driven by the brand and perceived reputation of the provider, rather than value-for-money calculations, some delegates aregued. This could result in people moving money from lower cost workplace pensions into more expensive retail vehicles.
Delegates all agreed that the workplace pensions sector potentially faced competition from newer providers, such as PensionBee, which may have higher brand recognition, particularly among younger savers. Providers and consultants agreed that the workplace pension sector needed to promote itself better, particularly on issues like charges — where they remain keenly priced, thanks to a combination of scale, market competition and the default charging cap.
Scottish Widows director of workplace pensions Graeme Bold said: “As an industry we need to address these issues and help customers make the right decisions when it comes to consolidating their pension.
“But it will come back to brand and relationships. These will be the factors driving consumer decisions. Which companies do they already have a relationship with? And who makes it easy for them when it comes to managing their money?”
Richard Smith, a dashboard consultant who has worked for the Pension Dashboard Programme, PLSA and Moneyhub, amongst others, agreed, saying his own job history meant there were four different dashboard providers that he might end up using – a bank, a consultancy/administrator, a master trust and the government’s MoneyHelper service – depending on which one he liked most.
“And then you may also go for someone with good advertising,” added Barnett Waddingham head of platform Luke Thackray, referring to those existing consolidators and new fintech start-ups that would inevitably target this area.
Delegates debated which channel was most likely to be the primary route to the dashboard for users. Thackray thought either a well-advertised third party app or the individual’s bank.
Bold said: “I think they will go to multiple places, and I do think that experience will be critical. To give you a perspective on the banking angle, we’ve got a million of our Scottish Widows workplace pensions customers on the banking app and they see their pension through the banking up 150 million times a year. But equally other companies, Mercer for example with the DB and DC, are also going to be connecting. It’s not going to be a single point and it might even break by segmentation.”
Thackray said: “It’ll get to the point where users will expect a dashboard from whatever provider they use and they’ll get frustrated when if they can’t and will go somewhere else.”
Battle for customers
Mercer head of proposition Stephen Coates said: “Another answer to the question of which dashboard will people go to, is that they’ll go to the provider that offers them the most optimistic view of what their future is going to look like. And the most optimistic view is likely to be that view which draws in everything else.”
Thackray said it was unlikely that providers like Barnett Waddingham would build commercial dashboards as a consultancy. “Our employers are coming to us for consultancy around communication, education, on which provider to go with. We’ll be looking at what features they have as well as all of the other good stuff. And it’ll be a case that having the dashboard functionality will be a hygiene factor.”
Rona Train, partner and senior consultant at Hymans Robertson, said her firm would explore opportunities as part of its personal wealth arm, but not through its consultancy side.
When it comes to the banks, Lloyds already has a strong position by virtue of its Scottish Widows arm. HSBC has launched a master trust, and Smith said other banks would be interested, not
least because the current trend of moving cash from pensions and putting it on deposit in current accounts had swollen banks’ funds. “Absolutely, I can see banks wanting to do that for this for this first generation [of dashboard users]. Of course, that’s not the best thing for consumers to do all the time,” he said.
Coates said: “I think this will land with those providers that have stronger consumer relationships. It will move away from the traditional pension scheme/ employer/ workplace arena because it sits across a number of different areas.”
Moneyhub key account director Paul Goodwin said: “I can’t help but think that this next 24 months should be about starting to help people understand a bit more about what they’ve got, telling them what’s going to be coming and then showing them what the future could look like, and they will start to think ‘well, actually, I’m going to go here then’.”
But the launch of pensions dashboards won’t all be plain sailing warned experts at the event.
Train cautioned that dashboard won’t solve all the problems around consolidation and small pots. She added many pension savers will still need additional guidance to ensure they are consolidating funds into the most suitable pension vehicle.
“Someone might see via a dashboard that they have eight pensions with six or seven different investment providers. How do they know which is best and where they should consolidate? Who is going to help them with that decision?” she asked.
People may choose to consolidate into their current, or their largest pension, or the one with a brand they liked. Charges may also be part of this decision, but she said that these are not easy calculations for individual consumers to make. “You might move to the pension with lower ongoing charges, but this doesn’t take into account the cost of the transfer. If you have to pay
a 1 per cent bid/offer spread to get there, this may wipe out the potential benefit,” she said.
Goodwin pointed out that the successful implementation of dashboards could prompt the government to look at ‘small pots’ legislation again. As he pointed out earlier attempts to try to resolve this issue did not get far “partly because of vested interests” from providers looking to protect their books of business.
Value for members
Train added charges aren’t the only factor where pension savers could potentially miss out. People also need to look at a scheme investment strategy.
This has “the biggest impact on members’ long term outcomes” she said, and making the wrong decisions can “annihilate” returns, when compared to decisions on charges.
“I worry all the time about value for member and I am not sure this process is going to deliver value for all members, unless they are supported by advice or guidance, when it comes to viewing pensions via the dashboard and consolidating them.”
Standard Life head of proposition Neil Hugh pointed out that there was a bigger picture to peoples’ finances than the dashboard. He said: “This is where open finance will come in to play.
The dashboard is still only part of the picture. Actually what money have you got? What money is already in payment? Is there equity in your house? That’s the conversation we need.
“When we talk to people about why they don’t engage with pensions it is because they feel ashamed that they’ve not been doing enough in the past. So actually, the dashboard will support that underlying lack of confidence.”
Bold added: “Open pensions, open finance and robo advice will collide. There’s a bunch of people who are not able to get online and there’s a bunch of people who are scared to go online, and none of that will change as a result of the pensions dashboard. You’re going to have to help people get over an emotional barrier first.”
Bold said that Scottish Widows is already starting to reap the benefits of digitisation across the industry. The pension provider, which is owned by Lloyds Bank, has completed more than £2bn of digital non-advised transfers, since the bank launched its digital money management app —with more than £500m transferring last year.
Coates agreed that people were more likely to favour a pension provider offering an easy-to-use service than one offering lower fees.
“People will go for better experience over fees. Most people don’t really appreciate the impact fees have on their investment, particularly close to retirement, which is when they are more likely to be engaged and looking to consolidate various pension pots.”
He pointed out that the impact of making the correct decisions around retirement — be it how to take benefits or not overpaying tax — are likely to far outweigh the issue of whether a provider is charging 30 basis points of 35 basis points on their default fund.
Thackray pointed out that while it was generally beneficial to consolidate pensions, those switching without advice potentially risked poorer outcomes. “If you are on your Scottish Widows or Standard Life dashboard they are going to make it as easy as possible to consolidate with them. There’s likely to be a nice big ‘consolidate now’ button.
“These dashboards will show all your pension pots. But unless further regulations come in, they will not be required to point out that a rival provider might offer a cheaper pension option for example.”
Speakers discussed whether there was a need for greater regulation to protect consumers who were looking to consolidate pensions. Bold said regulatory “guardrails” were already in place, and he did not foresee the need for significant regulatory changes once the dashboard is fully operational.
“The industry itself is competitive and regulators will be there to make sure that are not unscrupulous things going on like, financial incentives to transfer your pension or a flat charge of 50 basis points to consolidate.”
Hugh added that there was already a regulatory process overseeing the market and digital consolidation was already taking place.
“It’s not a wild west out there. We do have existing governance in place. We are regulated by the Financial Conduct Authority and TPR. We’ve got master trust boards and IGCs in place. There is a process there that asks, for example, whether there are guarantees on existing pensions.”
However he pointed out that not all providers necessarily have the same level of governance in place, and some consolidators charge considerably higher than what is common in workplace schemes for roughly the same investment strategy. This may be an issue that needs further exploration when dashboards launch, he said.
Pension dashboard consultant Richard Smith pointed out that when dashboards launch there will be a lot of controls that providers will have to comply with, including design standards on how information is presented. This, he said, may influence which providers members pick, when consolidating pension pots.
“People may want to select how they see their various pension pots: is it alphabetical, by size of fund, or chronological on the date taken out. But the default sort order may be quite material on how people view their pensions and the subsequent action they take,” he said.
Advice more accessible
Aegon EBC director Martin Trenchard said: “The key point is dashboards will make advice more cost effective, because it could make the adviser’s job a lot easier in terms of collating all the individual’s information.
“The UK’s pension system is complex, but the dashboard will allow delegated access, potentially allowing advisers to view your information and offer advice.”
He pointed out that it isn’t just financial advisers that will be able to have this access, but those offering guidance through independent bodies, like Pension Wise or providers’ own in-house services. “Aegon assist is a telephony guidance service. We hope to be able to link that into the support around the dashboard.”
Coates agreed that there is the risk that information may be “slightly overwhelming” for some consumers. But he said hopefully the dashboard opened the door to making advice both more accessible, and more affordable. “Given pensions are a central piece of people’s wealth for retirement this will be a massive step.”
Goodwin agreed the dashboard initiative should encourage more people to engage with their pension, and result in more people seeking information about their retirement options. “If people are phoning up or speaking to someone about pensions in the round then this is significant progress from where we are now.
“The dashboard will provide a lot of information and it could be better if we as an industry are helping customers understand what this information means, not just in terms of pensions, but in relation to their overall savings and retirement.”
Panellists were asked to consider what the pensions market might look five years from the introduction of these dashboards. Consolidation might increase — but how fluid will these assets be? Will ‘open finance’ initiatives, alongside the dashboard see the UK follow Australia, where significant assets have flowed from banks and insurers into the ‘not-for-profit’ superfunds, on the back of strong performance?
Smith pointed out that UK pension market is currently a long way behind the more mature Australian market, where a barrage of TV advertisements encourage consolidation and consumers use league tables to compare pension performance.
“In the UK around 40 per cent of DC members don’t know that their pension pots are invested in equities and bonds. There is some way to go before people are challenging investment strategies and looking at why pension A performs better than pension B.”
Coates agrees that very few people currently consolidate pensions at present, particularly without advice. “We’ve done a lot of research of our own. It’s a big sample and we’ve been running the figures for over 12 months. Quarter on quarter I think about 0.24 per cent of these pension savers actually made a transfer off their own back. It’s a very low figure,” he said.
“Everyone instinctively thinks that this is a massive opportunity and we’re going to see people shovelling tons of cash from one provider to another, but I don’t think there’s a huge appetite for this at the moment.”
Even if consolidation does not reach levels seen in Australia, the question remains as to which providers will attract new funds, and which will haemorrhage business as savers look to merge funds.
Most of the delegates said providers with strong brand recognition, easy-to-use customer-facing technology and a good track record on managing investors’ funds were likely to be ‘winners’ in this process.
Thackray said that his process might be the catalyst for more consolidation in the workplace sector, particularly among master trusts, with those losing ground become a target for M&A activity from successful providers.
Bold pointed out that there may be the opportunity for new fintechs in this space. “There will be companies who have fantastic brand recognition who might not have been associated with pensions in the past. They might be offering consolidation services. We’ve seen that in the general insurance market for example,” he said. “I think it will be a call for action for providers to modernise their brand in order to stay relevant in that consumer conversation.”
He pointed out that different brands are likely to appeal to different segments of the market. Younger savers for example might be attracted to newer fintechs, like PensionBee. However those looking to consolidate more substantial pension pots might favour more “traditional” brands.
Goodwin said that the key to staying “relevant” will be data. “You have to know you customers and ensure services and products are targeted at them. It will be about personalising the pension journey. Making sure people have the right information at different stages of their savings journey.”
Smith suggested other factors, such as a pension providers ‘green’ credentials may also play a part. “One reasons I might consolidate my money into the Nest pension is that it owns a solar farm by the M4 in Reading, where I come from.
“Other providers might be taking steps to address climate change, but they haven’t told me about it. It’s about communication. Issue like this will matter to a lot of savers, and not just younger ones,” he said.
But Hugh said Standard Life’s research shows that while pension members care about issues like the environment, it is not the issue that engages them most. There was also concern about how providers would display this information in a standardised format via a channel like the dashboard — although the government’s new taxonomy standards may help.
Hugh pointed out that this will be some way down the line. When they are implemented dashboards savers should get a better understanding of the different pensions they currently hold. This will hopefully encourage more engagement with retirement savings, reduce the cost of advice, and help people plan for their future, he said.