When the UK government revealed it was going to introduce a pensions dashboard where people could see all their pensions in one place; schemes and providers believed that a ‘cut and paste’ job was all that was required of them.
But analysis by investment and pension consultancy Lane Clark & Peacock (LCP) shows it may not be that simple.
LCP partner and former pensions minister Steve Webb said that pension schemes and providers could face “massive additional work” costing millions of pounds because of the way different companies process and present their data.
At the very beginning, the government said, in its response to the pensions dashboard consultation, that in the first phase, schemes would “at maximum” be asked for information that was already available in their annual statements.
But the Pension Dashboard Programme group, which is consulting on the data standards required for the platform to go ahead, said that the public will expect to see their expected retirement income from each pension they hold as well.
This complicates things because there are “huge variations among both defined benefit (DB) and defined contribution (DC) schemes in the data they supply to members in statements”, Webb said.
Additionally, many deferred DB members do not even receive regular statements.
This means that there could be a “fundamental problem” regarding the standardisation of the data provided to the dashboard.
For instance, Webb said, a DB scheme might provide pension figures based on service to date, assuming continued active service up until the retirement date. DB members also have different tranches of entitlement and some statements will list them separately, or all together in a single figure.
Whereas, on the DC side of things, trust-based schemes provide projections based on the rules set by the Department for Work and Pensions (DWP) – also known as statutory money purchase illustrations.
But contract-based DC schemes provide their figures according to the rules set by the Financial Conduct Authority (FCA), with low/middle/high growth assumptions.
The main issue is that information is provided in different ways and according to different assumptions, depending on which type of scheme a member is part of.
Webb believes the government has two options:
- Allow pension schemes to cut and paste their existing data onto the dashboard, making it “completely inconsistent” because figures for two DB pensions for the same member could be calculated in totally different ways; or,
- Require schemes to supply data consistent with updated standardised definitions.
If the government opts for the latter, it will create a massive task for schemes, especially those operating within the DB space.
Webb said: “Even the best administered schemes will still have to deal with ‘non-standard’ cases – eg people with pension sharing on divorce, people with transfers in, or people working past pension age – which may require manual calculations to present their entitlement on a new definition.
“But schemes where data is less well organised to begin with may face huge costs in presenting values on a new basis for all active and deferred members.”
Webb believes the government needs to be more transparent about its plans for the pensions dashboard, because requiring a different set of data standards would cost both schemes and providers millions of pounds.
He continued: “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,” Webb added.