Hopes are growing for cash-strapped pensioners and clueless savers as the government takes the next step on the journey to savings clarity.
It can’t come soon enough.
Dogged by confusing, piecemeal information coming from all directions, UK consumers are struggling to stay on top of what money they have saved where when it comes to pension pots.
Only last month, new research revealed the number and value of lost pension pots was six times the figures previously estimated – around 1.6 million individual pots.
Worth a total of £19.4bn, that’s the equivalent of £13,000 per pot, according to the Association of British Insurers (ABI), which represents pension providers, and the Pension Policy Institute.
The average person will have around 11 different jobs over their lifetime and move home eight times.The government predicts that there could be as many as 50 million dormant and lost pensions by 2050, the ABI warns.
But the problem of tracking down what we already have pales in comparison with the problems of not having a clue about what we need.
A third of respondents to Aviva’s recent Retirement Reality report said they expect to be able to just get by after they stop working. A quarter anticipate financial struggle. Just under a fifth think they have enough money to really enjoy themselves.
In the dark
The truth is that few of us actually have any idea of how our savings today turn into an income tomorrow. One in four people aged 50 to 64 are unaware they will have to pay tax on their pensions, according to Legal & General.
As a result, everything from complacency to despondency fuels a lack of engagement and commitment to saving above the minimum they’ve been automatically enrolled for.
The Financial Conduct Authority estimates that 15 million adults still aren’t paying into a pension at all.
More than a fifth those with pension savings in a defined contribution scheme – when a regular contribution towards pensions savings is made by employers, employees or both, plus tax relief and investment returns – have less than £5,000 set aside.
The good news is the prospect of accessing pension information, including on state pensions, at a single source is a step closer. On Monday, the government published its “pensions dashboard” consultation.
Knowing how much is saved, what it could be worth later, and what to do to avoid poverty is made easier.
Above all, the aim is that with easy access information, including projections of what our pots today will give us in income tomorrow, we’ll engage with and care more about making sure we have the money we need after we stop earning.
“Pensions dashboards are another major milestone in our radical pension reforms, harnessing innovative technology to benefit savers,” says Guy Opperman, minister for pensions and financial inclusion.
He adds: “Plain pensions information at the touch of a screen will ensure better-informed, more engaged savers and help many more people to plan effectively for retirement.”
Devil in the detail
The response from the pensions industry, however, is lukewarm.
“With state pension data unlikely to be available from day one, it’s clear the dashboard will be a work in progress, but today’s announcement is a positive step towards a solution that has the potential to help millions of savers make better decisions about their retirement,” says Alistair Wilson, Zurich’s head of retail platform strategy.
Tom Selby, senior analyst at AJ Bell says: “The fact No 10 has thrown its weight behind the plans can only be a good thing, while confirmation state pension data will be made available is a step in the right direction”.
However, he says that without legislation, rollout will be limited: “While modern platforms and pension providers competing for new customers will want to get involved, older schemes operating outdated technology will likely need a kick up the backside.”
Selby adds: “The government needs to be clear with people about what the dashboard they see at launch shows them and what it will be missing.”
Among the greatest fears that is people will make poor decisions based on incomplete information.
“How retirement income information is presented to people will also be critical in ensuring those who utilise dashboards are spurred to action,” says Selby. “In an ideal world pensions would not just be presented to people as pots of money but also converted into retirement income estimates they can actually relate to.
Still no support for the self-employed
While millions of full-time workers are in the minimally supportive embrace of automatic enrolment, more than half of the UK’s self-employed - making up more than 14 per cent of the population - don’t have a pension at all.
For this largely ignored workforce the latest industry-led plan should set off alarm bells, according to the Federation of Small Businesses.
“Fewer than one in three sole traders currently save into a private pension. The danger is – without government pulling out all the stops to deliver these dashboards – the incredibly drawn-out process of making them a reality will yield little impact,” says Mike Cherry, the FSB’s chairman.
Cherry urges department of work and pensions secretary Amber Rudd to “inject some leadership and drive into this long-delayed initiative”.
“Pensions dashboards should link to users’ state pension data from day one so they know exactly where they stand. We can’t continue with a situation where some sole traders think the state pension will be enough to get by on in retirement.
AJ Bell’s Selby adds: “We need to remember that, while building the Dashboard is an important step, this is not Field of Dreams – if we build it, they will not necessarily come. To foster genuine engagement individuals need to be given timely information in a simple, clear way they can relate to, rather than heaps of unintelligible documentation that inevitably just ends up in the bin.”
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