In this edition, Chris Wagstaff looks at the crucial role of pension dashboards and Pension Wise in guiding
pension savers to desired retirement outcomes.
Pension dashboards
Driving my car the other day had me thinking about pension dashboards. Motorists rely on their, increasingly sophisticated, dashboards to assist them in reaching their desired destination safely and efficiently by alerting them to potential risks en route. With SatNav now a basic requirement for most motorists and customisable digital dashboards becoming increasingly common, dashboard design has certainly moved on in recent years, mostly for the better, with today’s dashboards being almost indistinguishable from those of even 20 years ago, let alone 40 or 50 years ago. Indeed, the sparse instrumentation, poor layout and questionable reliability of the dashboard on my first car, a 1973 Mini, pales in comparison with its 2020 descendant.
So how does all of this relate to pensions dashboards? Well, let me ask you a question: would you drive a car without a fully functioning speedometer, fuel gauge and oil level warning light (as I frequently did in my Mini) and without a SatNav to guide you? Hopefully not, assuming you want to arrive at your destination safely, relaxed and on time. And so it is for the pension saver who ultimately seeks to arrive at their destination point on time with a pot that delivers a desired standard of living after a lifetime of work.
The need for a pensions dashboard is, of course, further reinforced by the shift from collective passivity to individual responsibility, as State and employer paternalism cedes to savers increasingly taking a great deal more personal responsibility for their retirement and financial futures. This, at a time when most pension savers have multiple small pots which typically don’t follow the member as they move between jobs. Indeed, many pots are “lost” along the way. Therefore, having all of one’s pension entitlements displayed securely online in one place in a simple, logical fashion should help spur most people, perhaps even the most inert, into some sort of action. However, if it is to drive better, more informed choices, or to provide pension savers with the information they need in order to then seek further guidance and/or advice before they make a decision, the dashboard and its data should be both simple to access, very easy to interpret and customise and bang up to date. In behavioural speak, it should be EAST: Easy, Attractive, Social and Timely.
However, the first workable iteration of the Money and Pensions Service’s (MaPs) online pension dashboard, being driven by the Pensions Dashboards Programme (PDP)1 and due to make an appearance in 2023,2 is unlikely to offer full functionality. What people really need to know, and what is likely to be missing, are their ERI (estimated retirement income) numbers. That is, the total amount of income one’s pension entitlements (including the State Pension) will prospectively generate, as at one or a number of desired future points in time, and how sustainable this level of income is likely to be before the pot runs dry. This is crucial. Just as a motorist’s SatNav converts speed, distance and known roadblocks into a single ETA, the pension saver also needs to know what their probable end game looks like, conveyed by a simple, easily comprehended ERI number.3
Moreover, in much the same way that a car dashboard is there to help guide the driver safely and efficiently to their desired destination by feeding them a host of relevant information in a simple, intuitive and timely manner, so a pensions dashboard should do similarly – no more, no less. It certainly shouldn’t be the conduit to actioning a decision with a pensions provider or an adviser, as some have suggested. Indeed, just as motorists (absent driverless technology) act on the information from their dashboard by using other instruments, pedals and levers to get them to their intended destination, any decisions resulting from the information provided by a pensions dashboard should be separately actioned via an adviser or the pensions provider. To move the dashboard on from being anything other than a crucial source of information from which pension savers can make informed choices and decisions, will simply overcomplicate what should be simplicity itself.
Pension Wise
Of course, once launched, the MaPS dashboard should be a prime and welcome source of guidance, supporting that made available by those pension providers and platforms who seek to help pension savers navigate the complexities of pension decision making, and by Pension Wise, the free pension guidance service for the over-50s. Indeed, when it comes to seeking impartial and informed guidance, particularly on the decumulation options available to pension savers under freedom and choice and their associated risks, most pensions practitioners would agree that Pension Wise is hard to beat. Despite this, the take up for Pension Wise remains woefully low, (ditto seeking pensions advice, given a widespread unwillingness or inability to pay for the latter).4 Consequently, decision making at retirement, post freedom and choice, isn’t, on the whole, well informed, with many pension savers leaving themselves wide open to scams.
Having spent an afternoon, a couple of years ago, at Michelle Cracknell’s invitation (Michelle was Pension Wise’s former CEO), observing Pension Wise in action and having recently had a Pension Wise review myself, I support the view, advanced by many of the pension community’s thought leaders, that overcoming this inertia by auto enrolling the over-50s to receiving a Pension Wise review prior to accessing their pension pots will deliver better outcomes. In fact, subject to adequate resourcing, I’d be inclined to make a Pension Wise review available to the over-45s. That is, at a stage in life when retirement planning should start to become uppermost in people’s minds. However, rather disappointingly, this idea of opting in pension savers to receiving a Pension Wise review has yet to gain traction.
Why does this matter?
I‘ve long believed that the continued absence of pension dashboards and poor take up of Pension Wise goes some way to explaining why many pension savers, particularly those at retirement, continue to make sub optimal decisions.5 Given that most people don’t know what they don’t know, good guidance holds the key to generating better retirement outcomes.
Nowhere is informed guidance better imparted than by Pensions Wise and information prospectively conveyed than by the pension dashboard. In fact, Pension Wise and the pensions dashboard are natural bedfellows. However, despite the PDP’s best efforts, the disappointingly slow pace at which the pension dashboard is being developed and the missed opportunity of not auto-enrolling pension savers into a free Pension Wise review at a crucial stage in the retirement planning process, will, I believe, continue to see sub optimal decisions being made, to the ultimate detriment of retirement outcomes. If retirement is to be enjoyed and not endured, then pension savers need to be steered in the right direction by having a fully functioning dashboard at their fingertips and a Pension Wise review to guide them through the complexities of freedom and choice.
