PMI Essay Competition: The potential benefits and pitfalls of the dashboard

Pensions dashboards are not a new concept but rather a concept that is becoming a reality for pension savers in the UK. On the 4 April 2019, the government gave the go ahead for work to begin on testing and eventually regulating pension schemes to get ‘dashboard ready'. It's difficult to comprehend what life in 20 years' time will look like but if we were to put a pensions dashboard into a time capsule and open it in 20 years what would we expect to be the potential benefits and pitfalls?

In a survey conducted by Britainthinks, 51% of individuals questioned agreed that it was challenging to access pension information with 70% agreeing that pensions were overly complex and complicated to understand. Within the 18 - 34 age bracket, 44% were of the opinion that it was only important to think about pensions when approaching retirement age. This was hugely contrasted by those aged over 65, with 96% disagreeing with this statement[1].

From the results, it is clear that there are some lessons that can be taken from those who have already gone through the retirement process. It provides pensions dashboards with the opportunity to promote a user experience to positively engage members with their pension and in 20 years' time it is possible the platforms could be widely used.

Potential benefits

For a pensions dashboard to have longevity and maintain demand, they will need to provide a customer experience for members by being interactive and looking at taking individuals through a journey rather than just being a pension finding tool.

Data improvements
Currently in the UK, pension schemes are working on improving their data and platforms in an attempt to be dashboard ready ahead of their staging date. To provide a good user experience, providers need to ensure that individuals are seeing their benefits and that the information being illustrated is correct. Pension schemes are endeavouring to correct data issues and continuously developing their information with pensions dashboards in mind. Although in the future it would be prudent to assume that there will be huge improvements to the quality of data, the growth of the use of pensions dashboards is certainly contributing to more accurate data. For dashboards to be utilised the data needs to be precise to match members to their pension pots but also to provide them with estimations of their future pension benefits. Regardless, the success of dashboards, now and in 20 years' time, will be largely reliant on the reliability of data.

Member engagement
To date, when a member is trying to locate their pension, it can involve time consuming internet searching and contacting pension providers to locate ‘lost' pensions. The concept of the dashboard, should it prove successful, will in theory eliminate searching and simply provide results on demand. 81% of individuals in the UK are either paying into or have a private pension. Well established pension dashboards should put the data at the hands of these members, providing the information to be fully aware of investments and entitlements.

Financial planning improvements
As with member engagement, another potential benefit of that pensions dashboards is the possibility to provide members with an overview of not only their pension arrangements but other financial holdings.

Currently individuals can be overwhelmed with their finances, not just their pension information. Pensions dashboards have the opportunity to engage individuals to provide information to better support their financial needs. In 20 years' time, the dashboard could potentially feed into financial planning applications such as ‘OpenMoney' which provides members with information such as their savings, mortgages, insurance policies and pension valuations. If the dashboards can integrate into these platforms, it should successfully promote a healthier and more educated population with a better understanding and oversight of their finances to aid planning for the future.

In Sweden, ‘MyPension' has been available to members since 2004 and is continually updated to suit the needs of the user. Originally the platform would only illustrate members deferred pension entitlements but improvements have been made to even illustrate pensions that are in payment. ‘MyPension' has further evolved to providing functionality and support to members approaching retirement, providing models and information to help in planning their pension withdrawals[2]. Should a UK version of the pension dashboard follow similar developments and proactively make advances, it would not be unachievable to integrate with other financial planning applications changing the way members understand, plan and manage their financial portfolios.

Potential pitfalls

Data and accuracy
As much as data improvements could be a potential benefit in the future, this could also be the pitfall of pensions dashboards should there not be significant improvements or accuracy given to members. Currently, due to inefficiencies and inaccuracies, the data for pension schemes often requires the support of pension providers and administrators. If in 20 years' time, the data for pension schemes has not made improvements, members will need to intervene, and likely favour traditional methods over the use of the pensions dashboard.

The investment into the development of pensions dashboards and the underlying data could reduce the funding available to support pension providers and administrators. This could result in a number of negative consequences, including the reduction of overall pension member engagement.

Currently, there are concerns regarding the safety of data and ensuring that individuals are not wrongly illustrated benefits or another individuals' details. If correct measures are not taken, it is not unreasonable that these issues could linger 20 years' later. The accuracy of the illustrations will be immeasurable to the user experience and have direct influence on member engagement.

Take up rates
With all the work that is going to be required to improve administration platforms and data accuracy, there could be the potential that all the work results in a lack of engagement from members. Denmark have had their ‘PensionsInfo' platform active for over 20 years and have found that although there is interest in their system, the members engaged are some of the highest earners in the country with large pensions and making substantial contributions. ‘PensionsInfo' has a low uptake of only 40% of individuals who have low pension contributions of approximately £2,500 compared with 70% of higher earners who have signed up to the dashboard. Similarly in the Netherlands, having had their dashboard active for over 10 years, the highest usage of individuals are those that fall into age brackets 56-60 and 61-65[3]. These statistics show that higher earners who are approaching retirement age are the users of the dashboard which is a potential pitfall should the UK statistics follow similar trends. The aim of the dashboard should be to engage younger generations to understand their pension holdings and how to manage and plan for the future.

In 20 years' time, it isn't unimaginable that pension dashboards could be a key fintech tool that users will use regularly. If the UK platform providers learn from other countries experience and continue to update their systems to meet the needs of the user, it would be difficult to imagine many pitfalls. However, the maintenance and upkeep of efficient, trustworthy systems is undoubtedly costly and in the future there is a possibility that the experience may be subject to a usage fee. Although usage fees unquestionably fall under the pitfall category, said fees could provide the funding required to deliver an exceptional experience that could be seen as an investment in a members future. Not only providing the knowledge needed to correctly understand and engage with their benefits but also ensuring that pension providers engage with the platform continuously and keep data up to date.  Therefore, a usage fee, although a pitfall could also allow individuals to gain the full potential from having access to the pensions dashboard.

Ultimately, pension dashboards have the potential to empower members by putting their pension information on an easily accessible, user friendly platform. By providing members with a trustworthy, reliable system, the Pensions Dashboard puts essential future financial planning information at the hands of the member. Information that may otherwise be overlooked, particularly by younger generations. Providing members with data and educating members on their potential pension contributions and latterly entitlements, this could lead to increased pension contributions as a whole. In doing so the Pensions Dashboard could contribute to much wider, socio-economic change, increasing member independence by lessening reliance on the state.

If the pensions dashboards can encourage contributors to consider their long term investments and savings, particularly during a cost of living crisis, the benefits current and in 20 years' time could well outweigh any pitfalls.

Caitlin Watson is a support pensions consultant at Spence & Partners and a support professional trustee at Dalriada Trustees