A pensions dashboard service could be a really wonderful thing for the citizens of the UK. But making it happen will be incredibly tricky. Over two articles, Richard Smith reviews some of the high level content and technical requirements for a pensions dashboard service.
Part 1 – Content requirements: One way of illustrating the complexities which a pensions dashboard may have to deal with is to look at some real world example careers. In this article, I’ve used my own and my dad’s lives as case studies.
Why my dad didn’t need a pensions dashboard
For my dad, planning for retirement was pretty simple – see his “life timeline” above. Alongside his state pension, his only pension is a defined benefit (DB) calculated based on his continuous service since he joined the General Post Office (GPO) in the 1940s.
He had to decide whether to take early retirement at age 58, but other than that, he didn’t really need to actively engage with, or make decisions about, his retirement provision at all.
Crucially, he had confidence during his working life about his retirement provision because it was all being provided by, and communicated by, just one DB scheme. This is the classic 1-to-1 relationship between working life and retirement that used to be so common.
Why I really need a dashboard
How things have changed in just one generation? It’s immediately obvious from my timeline below that the provision for my retirement is vastly more complex than my dad’s was. But what exactly makes it more complex?
The most obvious difference is the quantity of retirement income sources.
Dad’s 1-to-1 relationship is 6-to-1 for me. And unless I consolidate things a bit, I’m on course to receive at least nine streams of income in retirement, including my state pension and spouse’s pensions.
So, purely from the perspective of quantity, keeping on top of things is now much harder than it used to be. However, there are five further “dimensions” of content complexity that a dashboard needs to address:
1. Lack of empathy
2. Broad variety
3. Monetary values
4. Multi-option confusion,
5. Criticality of completeness.
Each of these dimensions is explored briefly below.
1. Lack of empathy:
All of my schemes & providers deal with me as if the pension provision I have with them is all I’ve got. There’s absolutely no empathy in any of their communications that they’re each only a part of my overall retirement picture.
Frankly, the whole model of “scheme communications” is now increasingly irrelevant: it worked for my dad, who was in one scheme only – but that’s old school: that world has gone.
2. Broad variety:
To date, I’ve amassed these pension types:
– Pension Protection Fund – Defined Benefit (DB)
– Trust Based Defined Contribution (DC)
– Group Personal Pension
– State and
– Public Sector.
Options for taking retirement income, and also benefits on death, vary enormously between these different types.
What value(s) should be displayed for each of the different sources?
An annual retirement income figure is preferred, but, for DB, at what date, and how, should that be calculated? For DC, should a simple “rule of thumb” drawdown income be shown? And how can tax free cash options be shown simply?
4. Multi-option confusion:
Getting to grips with just one set of pensions options and paperwork can put you to sleep. But I’ve got at least six discrete sets to contend with. This creates exponential torpidity and leads to the inertia generally pervading retirement planning being multiplied many times over.
5.Criticality of completeness:
It’s only when I can see my entire pension provision, with a total estimated retirement income figure (preferably compared against an income target), that I can begin to meaningfully understand if I’m doing OK, or, if I need to consider changes to grow my retirement income (such as contributing more, changing investments or retiring later).
From my timeline shown here, I believe that I’m doing OK and am on target for a “comfortable” income, at least by the time I’m 67. Without exception, everyone I’ve shown this timeline to has said: “I need to do that for my pensions”, so I’m guessing that these themes will resonate as fairly typical?
Next time: Part 2 – In the September 2018 edition of Pensions Aspects, I’ll consider the key technical requirements for a pensions dashboard service.