Six months from now a prototype pension data interface will be unveiled that will unlock the secrets of £800bn of defined contribution (DC) pension assets. The Treasury’s choice of Aviva’s Digital Garage in London’s Shoreditch Tech City for the launch of its pension dashboard prototype strategy shows just how key FinTechs are to government thinking in this area.
It’s hard to overstate the impact the Treasury’s pensions dashboard project will have on the nation’s monolithic savings sector. Acting as a Rosetta stone for those individuals and advisers looking to translate zombie savings and investments into more meaningful retirement strategies, the pensions dashboard will open the door to accelerated aggregation of pots, switches to cheaper and better providers and improved asset allocation strategies.
The dashboard will be a SaaS that will collate all of an individual’s pension assets – eventually including state pension, public sector defined benefit (DB), and private sector DB, DC and personal pensions – onto a single screen. It will give real-time valuations of all holdings, and hopefully the charges being levied on them.
This will be great for consumers as it will give them a single picture of their entire retirement saving, helping them understand how close, or far, they are from achieving the retirement income they want. It will also make it a hell of a lot easier to switch from expensive products to cheap ones. And it will cut the cost of financial advice, as advisers will not have to spend expensive chargeable hours sourcing paper pension statements from multiple providers.
The pensions dashboard will also be revolutionary for providers – inactive players with old high-charging products stand to lose a lot from this new super-slick plumbing that will shine a light on their poor value and make switching to a cheaper deal so much easier. For those that remain ahead of the game, the rewards will be immense.
Data aggregation technology has been around for some time. Screen-scraping services such as Yodlee have been facilitating an aggregated view of an individual’s finances for years, across mortgage, current account and other savings and investments. This technology has been adopted by some IFAs. In the workplace, Aon’s Bigblue Touch and Mercer’s Harmonise both offer a similar single aggregated view of pensions, and in Mercer’s case utilities, both designed to address the password fatigue stops so many of us bothering to look at what we have and what we are spending.
But these systems require the user to input their own data and passwords, and it requires the providers holding the assets to play ball and hand their valuable data back to the system. Security has been a stumbling block for aggregation to date – for the system to access data, the user has to input his or her login. Yet some data holders have said that where a user hands their login details over to a third-party they have negated the data holder’s security terms, thereby becoming responsible for any breaches.
The involvement of central government in the project gets at least some of the way round these problems – data has to be handed over to the central dashboard, and where providers refuse or fail to do so, the government is likely to make them play ball. And because the data hub is a common resource it will be much harder for providers holding assets they want to hang onto to blame the consumer in the event of security breaches.
This pro-competition Treasury-led initiative will also give a massive boost to the robo-advice space, and should also spark innovation in the field of financial engagement and education. The government is pretty clear that the pensions dashboard will be available to all, presumably subject to security, licensing and governance requirements. This should lower the barriers of entry for anyone wanting to offer consumers a better way to access financial advice and information.
It’s worth remembering we are only getting the prototype in the Spring – some even predict this timetable to slip by a few months. When it will be fully up and running is harder to say. We won’t get state pensions or defined benefit schemes connected until several more years down the line – a lot of admin needs to be done simply to get many of these schemes off paper records. But the majority of DC pensions should be on board within the next couple of years.
And in the future, we should see financial services products of all sorts – banks, investment accounts, mortgages and the rest – all linked in by similar data links. The potential benefits for consumers and government are immense – almost as much so as they are for those providers who stay ahead of the curve.