Need to know:
- The pensions dashboard, due to be launched in 2019, will facilitate better engagement, but will be most effective as part of a broader communications strategy that includes face-to-face methods.
- In the earlier stages, the biggest attraction of the dashboard will be for consumers to track down lost pensions from former employers.
- Employers should provide education and guidance to supplement the information provided by the pensions dashboard to get the best effects for employees.
The first iteration of the pensions dashboard is due to be launched in 2019. Within three to four years, pension schemes will be required to provide data to digital dashboards, so that consumers can access their retirement savings information via a single online hub. Amber Rudd, work and pensions secretary, has also promised a link to the State Pension, to provide a more holistic picture of an individual’s entitlements.
A non-commercial service will be offered by the new Single Financial Guidance Body (SFGB), but in time, workplace pension providers will incorporate dashboards into their own offerings.
However, there is some debate over how effective dashboards will be in engaging employees with their retirement savings. A survey published in September 2018 by Lane Clark and Peacock (LCP) and YouGov, for example, found that only a fifth (21%) of UK adults believe that the pensions dashboard is the online technology that would most encourage retirement saving.
First steps
Initially, the biggest attraction will be in helping consumers track down lost pensions from former employers, notes Nathan Long, senior analyst at Hargreaves Lansdown.
“The early years will be a lot like dealing with a new born baby: a lot of hard work, but not a great deal of initial interaction,” he explains. “The first phase should give us a turbo-charged version of the government’s currently lacklustre pension tracing service. This will be a huge step forward in helping people track down old pension plans and align their ducks by consolidating pensions ahead of retiring."
Therefore, employers should not expect instant rewards when it comes to employees engaging, understanding and increasing their contributions. “The real rewards will come when the dashboard has grown up, all providers are sharing their data, the State Pension is included and commercial dashboard providers can innovate to help people prepare for their life after work,” says Long.
Engagement
The introduction of a pensions dashboard will encourage more frequent engagement, allowing members to assess information regarding their entitlements whenever and wherever they like, at little cost. However, while online interaction is important, face-to-face meetings are an integral tool for bringing pensions to life for the workforce.
Long says: “It’s important that employers don’t see the dashboard as the saviour for getting employees interested in saving for retirement. Our analysis shows that two-thirds of workplace pension members increase their contributions if they’ve had a face-to-face meeting, compared to 42% that don’t meet in person.”
Financial planning is also by its nature personal, and dashboards cannot include individual savings accounts (ISAs), share schemes and other savings that people need to consider when planning their retirement income holistically.
“Online tools on their own have limited impact when it comes to individuals making decisions,” says Jonathan Watts-Lay, director at Wealth at Work. “The most effective way to create engagement is through face-to-face seminars or one-to-one sessions, often over the telephone. Most people want a discussion when making big financial decisions, particularly at-retirement, albeit online tools and calculators can provide support once employees are engaged in the subject.
“What employees really need is support through the provision of financial education or guidance, on how best to take income from all their different sources of retirement savings, and how to do this in the most tax-efficient way.”
Pensions in context
Dashboards are unlikely to display information about a pension plan’s charges or investment performance, or show whether old pension pots have exit penalties or valuable guarantees.
Steve Webb, director of policy at Royal London, says: “For these reasons, employees will be looking for impartial guidance to make best use of this new information, and employers will often be a trusted signpost to such help. It could be important in supporting employees making the transition to retirement at a time that is right for both worker and [organisation], rather than having to work on, having not maximised their pension position.”
The Pensions and Lifetime Savings Association (PLSA) is lobbying for pension savings to be more meaningfully displayed in the form of a projected annual income, to allow individuals to understand the realities of their position.
“People need to see their savings in context, and that means in comparison to how much they will need in retirement,” says Nigel Peaple, director of policy and research at the PLSA. “We would like to see the PLSA’s Retirement Income Standards included. These standards are being developed by Loughborough University to show savers how much it will cost to live a minimum, modest, and comfortable lifestyle in retirement."
So, while the introduction of the pensions dashboard could have a significant impact when it comes to boosting understanding and engagement with retirement savings, employers should not rest on their laurels. Instead, the dashboard should be viewed as one of a number of tools to be integrated into an overall strategy of education and communication.
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