Out-Law Analysis | 18 Mar 2021 | 3:18 pm | 3 min. read
Royal Assent of the UK's Pension Schemes Act 2021 marks another step closer to a pensions industry supported by dashboard infrastructure. By 2023 pensions businesses will need to be ready to participate in dashboards as either suppliers of information or dashboard operators or both.
It is now five years since the UK government first announced a project to create digital visibility of all retirement savings and income streams, including the state pension entitlement.
Although the government originally envisaged the first pensions dashboards to be in place by 2019, last year the Pensions Dashboard Programme, which is responsible for designing and implementing pensions dashboards, said they would not be widely available before 2023.
The introduction of auto-enrolment nearly 10 years ago provides an interesting analogy. That was pensions law and policy delivered by payroll systems, pensions administration businesses and pension providers.
In the case of auto-enrolment, the legal requirements were so complicated and rigid that mere compliance was an enormous challenge and in some cases practically impossible. The dashboard project is again a form of pensions law and policy delivered by systems, administration and scheme providers.
Open banking provides another analogy. The Payment Services Directive 2 paved the way for requiring financial institutions to share the financial data of their customers with dashboard and other fintech app providers when requested to do so.
This has required industry-wide cooperation, the establishment of a central body to delivery central communications infrastructure, industry data and application programming interface standard and guidelines through the Open Banking Implementation Entity. Financial institutions have needed to develop application programming interfaces and adapt their customer-facing solutions to enable such transfers.
In the period to 2023, there is much work to do to for pensions businesses to become dashboard ready. Whatever form the impending regulations take, there will be operational, legal and regulatory pitfalls, some similar, some different to that of auto-enrolment and open banking.
The supply of information to dashboards will be a scheme-level obligation delivered by pensions administration systems and businesses. Pensions administration is difficult, having to contend with legacy systems and records, complex benefit structures and the lack of reliable individual identifiers in the UK.
When an individual logs on to a pensions dashboard, the dashboard’s ‘ecosystem’ will send a digital ‘find request’ to pull the relevant pensions information onto the dashboard. At scheme and provider level, systems and records will need to be able to match the individual and deliver up the relevant information in digital form.
Inaccuracies in the data or system constraints may lead to non-compliance, inability to participate commercially and potential General Data Protection Regulation breaches where data is returned for the wrong person due to an inaccurate match. Identity verification systems and standards therefore will also need to be established. The impending regulatory regime is likely to both resolve and create challenges too.
Operating a dashboard for commercial purposes may be very attractive. The non-commercial dashboard is geared up to provide visibility of a person’s multiple pensions savings to complement services provided by Pensions Wise and financial advisers. Commercial dashboards should be able to go a step further and allow pension savers to access a wider range of functionality. In particular, commercial dashboards should enable individuals to consolidate their own pension savings through transfer.
Consolidation in good value, well governed, accessible arrangements is generally a good thing for pensions businesses and savers alike. It should help to overcome the continuing difficulties of administering small and micro-pots – and may also help to create greater economies of scale with all of the benefits that brings.
Playing as a provider in the dashboard space will require authorisation by the Financial Conduct Authority to undertake this new regulated activity. Regulatory authorisations, never a straightforward process, may also be a leap into the unknown for some businesses intending to operate commercial dashboards.
Commercial dashboard operators will also have to navigate the minefield of pensions transfers. Unfortunately, transfers have a mixed history. Defined benefit to defined contribution (DC) transfers have given rise to claims of mis-selling or similar. DC to DC transfers have fallen prey to scammers. Both forms of transfer are now highly regulated to protect individual savers, but the risks still remain and create a heavy compliance and risk management burden on pensions businesses.
Associated services, like robo-advice or more traditional forms of advice, may dovetail well with the provision of a commercial dashboard and help guard against risks of savers entering into unwise or even fraudulent transfers which they later regret.
Money management apps too will see the value in combining open banking transactional datasets with pensions data in order to provide consumers with a clearer overall picture of their finances. The contractual relationships between the technical providers of data access and customer-facing dashboards will require careful consideration.
These hurdles will all have to be overcome before dashboards can become operational, and there remains significant work for all involved to reach that stage.
Pensions expert Lorna Khemraz contributed to this article