Complying with new dashboard regulations could cost pension schemes and providers millions, according to new research.
Pension consultants LCP say that despite government assurance to the contrary, there may be significant costs involved in preparing data for the pension dashboard.
LCP partner and former pensions minister Steve Webb says previous government statements claimed in the first phase schemes would only be asked for “the information already available on annual statements, or by request”.
But this appears to be contradicted by recent consultations on data standards by the Pensions Dashboard Programme group. This body states that the public will expect a dashboard to show the ‘expected retirement income’ from each pension they hold.
Webb says that there is currently huge variation among both DB schemes and DC schemes in the data which they supply to members in statements, and many deferred DB members do not get regular statements at all.
For example, a DB scheme might give a pension figure based on service to date or assuming continued active service up to retirement.
Also, DB members often have different slices or ‘tranches’ of entitlement and some statements will list these separately whilst others will lump them together in a single figure.
On the DC side, trust-based DC schemes provide projections based on rules set by the DWP (‘statutory money purchase illustrations’) while contract-based DC pensions are projected on rules set by the FCA (with ‘low/middle/high’ growth assumptions).
The fundamental problem is that information currently supplied on statements is provided on a range of different assumptions and presented in different ways, LCP says.
This presents the government with two options, when it comes to dashboard design. This first is that this data is simply ‘cut and pasted’ onto the dashboard, but figures are inconsistent, and made using different assumptions.
The alternative is that schemes are required to supply data to the dashboard on new and standardised definitions.
Assuming data has to be standardised this would be a huge task for schemes, especially in the DB world.
Even the best administered schemes will still have to deal with ‘non-standard’ cases, for example those pension sharing on divorce, people with transfers in, people working past pension age and so on. This may require manual calculations to present their entitlement on a new definition.
Webb says for many scheme where data is less well organised to begin there could be huge costs in presenting values on a new basis for all active and deferred members.
The Pensions Dashboard Programme is expected to publish its further thoughts on data standards later in the year, whilst the DWP is expected to publish regulations on dashboards in the new year once the Pension Schemes Bill has completed its passage through Parliament.
Webb adds:“The pensions dashboard is a very important initiative, but the government needs to come clean about what is involved.
“If it really intends the dashboard simply to be a cut-and-paste from existing statements, then the information on display will be utterly inconsistent between different pensions. Assuming that this is not what is planned, schemes will instead have to do a huge amount of data manipulation to get data in a standardised format for the dashboard.
“The cost of this will be huge, especially where data is not currently well organised. The government needs to be much clearer about which approach is planned so that schemes can prepare properly”.