The pensions dashboard: an actuarial perspective

Abstract

Abstract The pensions dashboard has been talked about across the industry for a long time. With the proposed implementation date of 2019 (although it has been questioned by some whether this is achievable or not), it is time to consider the actuarial aspects behind providing individuals with details of their pension benefits. This paper outlines the perspective of the IFoA’s Future Pensions Landscape working party. The paper considers the objectives of the dashboard and the functionality that may be required to deliver on those. It also highlights the difficulties of the necessary consistency between different types of benefits and the need for alignment with other pensions communications. Lastly, it considers what is needed to enhance the dashboard to enable members to understand what their benefits might look like at retirement and the opportunities the dashboard delivers for further modelling and financial planning. Objectives and functionality Much has been made about the difficulty (or otherwise) of delivering on the promise of a pensions dashboard, but ultimately that will depend on what it aims to provide for the individual. The working party has considered the short and longer-term opportunities with a dashboard and what functionality these may require. It is clear that a balance between functionality and deliverability must be struck to ensure that something meaningful is delivered within a reasonable timeframe (2). Different types of benefits The working party has considered the features of occupational and personal pensions, defined benefit (DB) schemes (5.21), defined contribution (DC) schemes (5.25) and the state pension (3). We believe that it is essential to deliver key information around each of them in a way that is consistent but takes account of the differences between them, including the need to: use scheme/benefit-specific pension commencement dates (4); display accrued and prospective benefits at retirement in real terms (5.6, 5.20); display dependants’ benefits when a part of the scheme rules (5.12); display details of benefits in payment or already in drawdown (5.4); ensure that deferred DBs are revalued to a recent date (5.22); be clear about the level of pension increases payable using inflation linking as a default (5.17); and outline any options on a benefit such as tax-free pension commencement lump sum (5.8). Having included the above, the dashboard must then consider how to allow for consistency of projection of benefits to the scheme/benefit-specific pension commencement dates. For DBs, this can be achieved relatively easily in real terms by allowing merely for future accrual based on the current position and benefit structure. For DC benefits, this needs a standardised approach. After consideration of multiple options (5.25), we have recommended a simplified projection approach using a risk-based allowance for real investment growth depending on the assets held (or a risk categorisation) (5.50). This would enable the dashboard to carry out consistent projections across DC pots. In an ideal world, we recommend that benefit statements use projections aligned to this approach, too. In order to build confidence in any dashboard (and in pensions in general), consistency between benefit statements and scheme provision of information is key (8). This includes the need for dates and speed of information provision, the type of information provided and assumptions and projection approaches to be standardised. We have also considered other hybrid benefit structures that exist. Many or all of these can revert to using the approach outlined for DB, DC, or a combination of the two along with the expertise of a provider to achieve the aims of consistent dashboard provision (6). We have also tried to allow for some of the legacy or complex issues within the UK pensions landscape that we consider relevant to the provision of a usable dashboard, such as the need to include Guaranteed Annuity Rates, and the need to explain the various risks and uncertainties with both DB and DC provision (7). Future opportunities for supporting financial planning The working party has considered the longer-term opportunities to use the dashboard to assist individuals with planning for their retirement. We recommend that the dashboard infrastructure be set up with this in mind from the beginning, even if the deployment of this type of support is a long way away (9) or even provided through third parties (10). The working party looks forward to the Department for Work and Pensions feasibility study on the dashboard (which is due for publication) and welcomes the chance to influence the shape of what has the potential to be a huge engagement opportunity for the pensions industry.