Keep an eye on the dashboard
When you’re on the long journey to the land of your dreams, it’s a good idea to know exactly where you are going and how you’re going to get there. You also need to make sure that you stay on track and that all the moving parts of your chariot of fire are working efficiently, otherwise you might end up somewhere not quite so good!
If you are in a car, you will check the petrol gauge, the brakes and, no doubt, the satnav – in other words, you’ll be keeping an eye on the dashboard.
The same principles apply to any project – you need to know the goal and how to get there and you need to be able to measure progress along the way. And the bigger the project, the bigger the dashboard required to keep you on track and up to speed.
We know where we're going, but we don't know where we've been...
This is the logic behind the proposal from the Financial Conduct Authority in 2014, when the idea of a pension dashboard was introduced, although the concept has been around for a few years. The government put its weight behind the project in this year’s Budget by committing to the launch of the dashboard by 2019 - working parties are now up and running to navigate through the technical aspects.
Because the journey to retirement can last for 40 years or more and because there are so many pieces of the jigsaw, a single dashboard which can display up- to-date information in one place and at the same time seems to be a sensible idea. It is in all our interests that we know how our pension provision is progressing, even if we don’t always like what we see!
At the moment, most of us have to rummage through piles of paper when we are trying to work out if we’ll ever be able to afford to retire. It isn’t helpful that every pension company seems to use a different style and format to tell you how much you have in the pot and that they keep changing their names, either because of a change in ownership or yet another re-brand/marketing initiative.
And it is a complicated exercise, as every time you change jobs you’ll probably add another pension to your portfolio. Keeping on top of all those annual statements,(assuming that you’ve told the pension company when you move house and that you still receive them) requires a level of motivation and organisation that some of us struggle to develop, particularly when retirement is many years away.
Even if you can locate your statements, making sense of the information provided is often a challenge too far. Aside from the complexities and jargon on the reams of paper issued by insurance companies, it can be difficult to work out exactly where you are (and where you might be when you retire) if you have benefits from final salary schemes, as well as funds in defined contribution arrangements. Whilst both types of scheme should provide an income in retirement, the method of calculating the amount of pension is very different and makes it difficult to arrive at an estimate of what your total pension might be when you reach retirement.
It's not just about the pension
As well as a collection of pensions of various sorts, you may also have a range of savings arrangements, like ISAs, general investment accounts and other investments. A comprehensive pension dashboard, covering all of your long term savings, should help you to plan for the future and whilst there are many challenges ahead (both known and unknown), at least you would be able to keep track of where you are at the moment.
And the future is (almost) certain. So how will the dashboard help?
Perhaps a better question is - What do you need to know to be able to plan properly for your retirement? Put at its simplest, you need to know the following:
a) How much have I got now?
b) How much will I have when I finish work?
There are lots of pieces of information that, when combined together, make up the answers to these key questions. And of course there are plenty of variables, which mean that there can be no certainties in the numbers that appear on the dial. Nevertheless, a pension dashboard should give you a simple and straightforward estimate that should make it easier to plan for the road ahead.
Having all of your pensions history provided in the same place and in the same format will enable you to make an assessment of where you are on the journey to the sunny uplands. The information you will be able to see should include:
Name of each employer
Name of scheme
Type of scheme
Scheme normal retirement age
Current contribution amount
Where is the fund invested
Projected value at retirement
Seeing the information displayed in this way will allow you to check for any gaps in your record and to correct any obvious omissions, so it might take some time before you’re happy that everything is present and correct.
On the road again
The task of building the pension dashboard should not be underestimated. Every leading insurance company will have to provide real-time information on both current and legacy types of pension policy and administrators of final salary schemes will be required to release data electronically, which is likely to prove a challenge!
And because the dashboard will include details of your state pension entitlement, the Department of Work and Pensions (DWP) will have to work hard to ensure that it can send out data on a regular basis for potentially millions of enquiries.
However, we won’t be the first to do this. Other countries have operated a similar service for a number of years and although the UK has pensions and savings plans of many types, it ought not to be beyond us to produce a pension dashboard that is accurate, complete and reliable.
On the face of it, the planned launch date of 2019 should allow sufficient time to build the necessary infrastructure. It may be that roll-out comes in stages with, say, state pensions and auto-enrolment funds appearing first, followed by other defined contribution schemes, with defined benefits and savings being the final pieces of the jigsaw.
However, because there are so many parties involved and so many security issues to address, we shouldn’t be surprised if the timetable slips a little. And, whilst the idea of a dashboard is unlikely to go away, we don’t yet know what support it will receive from the new government. George Osborne introduced a fundamental change to the pension and savings environment with the "Freedom and Choice" options in 2015. The arrival of LISA in 2017 and the heavily rumoured changes to tax relief had the potential to revolutionise the pension landscape, making it more important to be able to keep track of pensions and savings and whilst the 2016 Budget left the pensions tax framework relatively untouched, who knows what the future will bring?
Recent political events have changed the environment dramatically and the personalities involved in forming strategy haven’t yet shared their plans with us. However, there seems to be no serious objection to the principle of a dashboard, so we have to hope that the government keeps the batteries charged and that the wheels keep on rolling!
Topics: Next Generation Savings