In light of the Covid-19 pandemic, many employers will be thinking about the future of the workplace and the benefits of allowing employees to work more flexibly. The pandemic has also encouraged many businesses to embrace technology in their working practices and consider how it enables us to make our tasks simpler and more efficient.
At the intersection of these two significant cultural shifts in our working practices, we find pensions dashboards. The Minister for Pensions and Financial Inclusion has said that, "pensions dashboards will revolutionise the way people interact with their pensions" and that they "are an essential part of [the Government's] plans to modernise the pensions industry and make it fit for the 21st century digital age". Dashboards are also a reflection of the move towards hybrid working. Just as people are seeking greater flexibility and choice in their working environment, so too will they be seeking a more flexible way to manage their retirement savings that easily affords them the information to make the right choices for them.
With pensions dashboard developments set to be a major feature of the pensions industry in the coming year, we take a look at some of the key features of the infrastructure and anticipated timelines for their entry into force.
What are pensions dashboards?
Pensions dashboards are a digital platform through which individuals can access information about all their pensions, including their state pension, in just one online location. This will make it easier for individuals to see clearly the complete picture of their pension benefits, particularly given that a majority of people (currently more than 2/3rds) have multiple pensions. The policy intention behind this is that having easy access to all this information in one easily accessible online place will promote increased engagement of individuals with their pensions and enable them to make better informed decisions in managing their retirement savings. For example, they may reunite people with lost pension pots or make it easier for individuals to decide (based on a review of all of their pension arrangements stored in the one place) whether consolidating their pension pots is worthwhile.
What is the background?
Pensions dashboards have been an item of discussion in the UK for several years now, with the Financial Conduct Authority (FCA) suggesting the creation of a virtual pensions dashboard in an interim report back in 2014. In 2016, following a joint recommendation by the Treasury and the FCA, the Government allocated funds in that year's budget with the aim of introducing a pensions dashboard by 2019.
In pursuit of this aim, the Pensions Dashboard Project Group was set up, which launched a prototype dashboard in April 2017. It subsequently published a research report in October 2017 which made numerous recommendations, including a host of legal and regulatory changes it considered would be needed to support the introduction of dashboards.
The Department for Work and Pensions (DWP) published a feasibility report on pensions dashboards in December 2018, alongside a consultation paper. It suggested an industry-led system of multiple dashboards (both commercial dashboards established by FCA-regulated firms, and non-commercial dashboards hosted by the Money and Pensions Service (MaPS)), which would be implemented via a phased approach. The DWP confirmed this approach in its April 2019 response to its feasibility report and consultation and specified that legislation would be passed to make data provision by schemes compulsory.
With this background, the Pensions Dashboard Programme (PDP) was established in 2019, which contains representatives from pension providers, insurers and government, amongst others. The legislative framework required to support the introduction of dashboards was enacted by the Pension Schemes Act 2021 (PSA 2021), but these provisions are not yet fully in force.
How will dashboards work in practice?
For the pensions dashboards 'ecosystem' to work, multiple parties will require to work cohesively together.
The process will be that an individual navigates to a dashboard user interface and submits a request for their pensions information. The dashboard provider will then ask the Consent and authorisation service (CAS), run by MaPS, to confirm that the user consents to their data being used to perform the search and being sent by pension providers and schemes to the dashboard. The consent can be withdrawn at any time. An identity service, also run by MaPS, will then require the user to authenticate that they are who they claim to be.
The Pension Finder Service (PFS) will send out an electronic request to all schemes to search for a user's pension. If a match is found, schemes will return to the dashboard the location where the pensions information can be found and a unique electronic identifier to the CAS. Importantly, in the interests of ensuring security and compliance with data protection law, the PFS is not a database and will not hold personal or pensions data at any time.
The dashboard provider will then be able to retrieve the pensions information directly from the pension scheme, which only the individual who requested it will be able to access.
It is envisaged that eventually state pension data will also be available from the DWP via pension dashboards. In the interim, while this integration is being worked on, a link to the online Check your State Pension service may be available.
The dashboards infrastructure will be underpinned by a set of architectural principles surrounding GDPR and data protection obligations, and a governance framework (the correct operation of which will be ensured by a governance register) will make provision on the minimum standards that pensions dashboards must meet to be connected to the infrastructure. Standards are also being developed by the PDP, with input from dashboard users, government and various industry stakeholders.
Importantly for trustees to note, new regulations will impose obligations on them around provision of information duties for dashboards. There will be a legislative process allowing determinations to be made by the DWP, the MaPS or another prescribed person where trustees fail to comply with the requirements, and the Pensions Regulator will also be granted enforcement powers to secure compliance. This includes powers to issue compliance, third-party and penalty notices, with limits of £5,000 for penalties for individuals, and £50,000 in any other case.
What are the next steps?
On 31 January 2022, the DWP launched a consultation on the draft Pensions Dashboards Regulations 2022, which are to be made under the enabling powers in the PSA 2021. The Regulations provide for a mandatory staging timetable, according to which pension providers and schemes will be required to connect to the dashboards 'ecosystem' from mid-2023 onwards. In its recently launched consultation on proposed amendments to its Handbook, the FCA suggested a date of 30 June 2023. In the interim, the infrastructure for the project continues to be designed and developed by the PDP, which has also set out an 'indicative phase plan', most recently updated in its October 2021 progress report.
In summary, pensions dashboards are undoubtedly set to be a major change for all those involved in the pensions industry – users, schemes and stakeholders alike. Much preparation is already underway to support the introduction of the new infrastructure, and we will watch with interest as the industry continues to prepare for the full roll out next year. This mammoth process to bring peoples' pensions arrangements online in one place is analogous to the work being undertaken by employers at all levels across the UK to implement hybrid working and ensuring that the tools and processes are in place to facilitate that.
If you have any questions about anything raised in this blog, please get in touch with a member of the pensions team.