A week does not go by without some learned article lamenting the lack of transparency in the pensions industry. But perhaps the tide is turning: the Government has now recognised that it is in the national interest to redress the balance in favour of the consumer. In his last Budget speech, George Osborne, the chancellor, stated that the government will ensure the industry designs, funds and launches a pensions dashboard by 2019. Subsequently, Harriett Baldwin MP (then Economic Secretary and City minister) became the dashboard’s ministerial champion, but July’s reshuffle saw her depart the Treasury. An announcement concerning her replacement is expected shortly.
The ultimate disruptor?
The dashboard could provide more financial advantages to consumers than any previous pensions initiative. Fully functioning, it could become the ultimate disruptor of incumbent industry providers because, by offering consumers a simple overview of all of their pension pots, it could break the industry’s cultural attachment to a lack of transparency.
Merely providing information will not embed the dashboard into the consciousness of the public. To spur individual action and unlock its huge potential, it must demand engagement by offering utility through, for example, the ability to consolidate disparate pots into one place. This would improve individuals’ bargaining power with
the industry, leading to larger retirement incomes via lower costs and other scale economies.
Utility, allied with enhanced transparency to counter the industry’s innate talent to complicate, would also help drive competition, kindling trust between the industry and consumers. Ultimately this would encourage more people to save more, helping to close the savings gap, to the benefit of the individual, UK plc and the industry.
Delivery: a risky strategy?
An air of politically accommodating ambiguity surrounds the dashboard’s development, particularly in respect of accountability and responsibility. The government, having chosen to steer the boat rather than row it, is performing a delicate ballet, seeking to nudge the industry to lead.
This is at odds with international experience of what is required to realise a successful dashboard. Australia, Denmark, the Netherlands and Sweden all used legislation to shove, rather than nudge, the industry into taking part, particularly to compel data submission to the dashboard. But the UK government’s strategy is understandable given its chastening experiences with IT-centric projects. It has also given the industry an opportunity to shape its own destiny.
This could induce a dose of business schizophrenia among a minority within the industry: a fully functioning dashboard would highlight poorly performing, high-charging providers. They could choose to play chicken with the government, by prevaricating in perpetuity. Consequently, given the absence of any legislated “driving imperative” or formal contractual arrangements with the industry, the top priority for the dashboard’s next (ministerial?) champion should be to establish an independent governing board. Its purpose would be to keep the melee of project participants and stakeholders moving forwards, thereby helping to ensure delivery.
Just the beginning
A pensions dashboard should be merely the first step towards a comprehensive dashboard to display all facets of our personal finances. It should display bank balances, savings accounts and investments alongside liabilities so that, for example, users would be a mouse click away from offsetting high-cost credit card overdrafts and consumer loans against any positive cash balances (today yielding next to nothing). Consumers would be able, therefore, to improve dramatically the return on their assets, by dis-intermediating the retail financial services industry, much of which, arguably, we do not need. Indeed, the case could be made that it is one of the underlying causes of the UK’s poor productivity growth.
This article first appeared in Financial World, August / September 2016.