Pensions Dashboards Regulations 2022

Lord Davies of Brixton Excerpts

Tuesday 15th November 2022 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, as I said all those years ago when we were discussing what is now the Pension Schemes Act, I also greatly support the concept of the introduction of pension dashboards. I am probably one of the people the Minister referred to who has that dusty box under the stairs, so I welcome this SI in principle. I have a few questions that I would be grateful if she could answer. Unfortunately, I was unable to attend the briefing that she kindly arranged, so I apologise if some of these questions were dealt with then, but there is probably no harm in the answers being on the record.

First, like the noble Baroness, Lady Drake, I agree that the six-month notice period makes sense. I hear what the Minister said about progress in creating the dashboards, but she has not said when she expects the public to be able to access them. The year is probably broad enough, but it would be interesting to understand when we think these dashboards, or at least the first dashboard, will be available.

The SI enables the establishment of dashboards additional to the MaPS dashboard. Things have obviously moved on a bit since we were discussing the then Pension Schemes Bill, so could the Minister give us some idea of how much genuine interest there has in fact been in creating other dashboards? Is she aware of any being worked on at the moment? There is not very much in this SI to incentivise the creation of private dashboards, nor anything that sets out who would be allowed to do so or how they might generate revenue. I understand that that will be covered by the FCA consultation she referred to. Under this SI, all they will have to do is meet the dashboard requirements.

We had many discussions in previous debates around the use of dashboards for selling advertising, transacting, et cetera. The SI is silent on those matters. I would be interested to know whether the Government’s thinking has evolved since our previous discussions. Perhaps the Minister can let us know. She mentioned in her opening speech the dashboard not allowing transactions, but I think that relates only to the MaPS dashboard. I am not sure whether she intended that to mean private dashboards; perhaps she might clarify that. For example, is there anything that would prevent a large pension provider or a consolidator creating a dashboard and then using it to encourage users to transfer, perhaps from a smaller provider, to its products or services? Does the Minister agree that there might be a conflict of interest, or even a competition issue, in that sort of situation?

That leads on to the use of the data by the dashboard provider. I was not clear from the SI what was allowed in that respect. Regulation 9 seems relevant, but I am not sure I fully understood it. As an example, could a dashboard provider—perhaps a big tech company such as Google or Meta—create a dashboard and use the data it holds or acquires to target advertising for competing products? If that is or will be possible, that would worry me. It would be a really serious fraud risk. We need safeguards over who is allowed to create dashboards and the way that revenue will be generated from them. The SI is silent on that.

I also have some questions on the impact assessment. Some surprisingly big numbers are there, with a wide range of outcomes. The best-estimate case comes out at a convenient figure of £30 million positive, just about breaking even. Am I being slightly cynical to think that has been slightly massaged or managed? The net present values for the first 10 years range from a worst case of £1.016 billion negative to a best case of £1.220 billion positive. Frankly, all that says to me is that there is still a very high level of uncertainty about the actual costs and benefits of the dashboards. It is also true that the bulk of the cost will fall on the industry and the benefits, which are less tangible, will go to members. To what extent is it expected that these costs, which are somewhere in the region of £700 million to £1.6 billion if the impact assessment is to be believed, will be passed on to pension funds? What impact will that have on pensioners? In particular, one has to assume that the cost will be higher as a percentage of funds for smaller funds, as the level of bureaucracy is similar with a smaller amount of money to spread it across, so what impact is expected, particularly on smaller funds and their beneficiaries? Is any support anticipated by the Government?

Related to the impact assessment, despite the expected annual cost being approximately £100 million a year, which is 20 times the statutory guidance level of £5 million, the Government have decided not to include a review clause in this SI. Instead, they have opted for what they call a multi-strand monitoring and evaluation strategy, which is subject only to ministerial review and approval. That is regrettable, and I am not even sure what a multi-strand monitoring and evaluation strategy actually is. Can the Minister put on record what form she expects that multi-strand monitoring and evaluation strategy to take, when and how often it will happen, and what will be reported publicly or to Parliament?

The Secondary Legislation Scrutiny Committee’s report makes it clear that

“the system has not been fully worked out yet and will remain under development for some time.”

Can the Minister give us some insight about what further developments are still to come, what further SIs she expects to bring to us and when, and whether they might cover some of the matters that I have mentioned?

[Lord Davies of Brixton (Lab)]

My Lords, I am happy to take part in this debate. I need publicly to declare an interest as a fellow of the Institute of Actuaries, albeit non-practising. A dashboard is a very good thing, and we want to see it introduced. In truth, my perfect pension system would be one in which you never have to think about it until you retire, and we could dispense with dashboards, but we are not in that space, we have to have a dashboard, and this is the dashboard we have.

As I say, I welcome it. I was involved 25 years ago in discussions about an early progenitor of what we have. At that time it was just too difficult, but with the development of digital capabilities, it has now become a practical reality, and I look forward to it becoming a useful tool for people as they plan for their retirement. Noble Lords can probably tell from my tone of voice that I am heading towards a “but”, but I want to do that emphasising my gratitude for all the work that has been done by the department, the officials and the Pensions Dashboards Programme, as we call it now, although I rather wish they had not adopted the word “ecosystem”.

The regulations before us have to be judged in terms of what the objectives are. What are we having a dashboard for? The starting point was to connect people with their pensions. There was a lack of connection and the figures we have had of the orphan pots are truly staggering and concerning, so any step towards avoiding that problem is to be welcomed. Obviously, people want to know what they have got in those pots. That is straightforward and should be done.

Then we move on to a further stage, of people’s likely income in retirement. This is where things start to get sticky, because the point of telling people that likely income in retirement is as a “prompt for necessary action”—which I think are the words used on the PDP website. The Minister, whom I should have thanked for her detailed and helpful introduction, used the term “informed decisions”—so that people can take decisions commensurate with their retirement aims. I think the model people have in mind is that you look at your pension statement, you think that it is not enough, so you start saving more money. In that sense, it is inevitably and inherently a sales tool. That is one of the problems we face in setting up a dashboard that works in people’s interests.

A point that I have made consistently in discussions about a dashboard is that it has to have the state pension there, but an equally valid—in my view, more important—conclusion that you can draw from your pension statement, if you think your pension is not good enough, is “Well, I’ve got to start campaigning for a better state pension”.

I am going to look in particular, on the basis of that, at what Schedule 3 calls the “value data”. The regulations lead via the 2013 regulations to AS TM1 from the FRC. That is Actuarial Standard Technical Memorandum 1 from the Financial Reporting Council. A new version of that will come into effect from 1 October next year. I picked that up at the very useful meeting that we had with Ministers, but the first DAP for the larger schemes is supposed to be from 31 August 2023, or it could be earlier, which is before we have the new technical memorandum. The whole point of achieving this technical memorandum—it is spelled out in the work that has been undertaken—is that the previous version was not good enough for the dashboard statements. We had to have the new technical memorandum because the old one simply did not work. People could do it on all sorts of bases. You would have a consolidated statement with several figures which could all be calculated on a different basis and were not comparable. So we came up with this new technical memorandum which requires schemes to do it on a standardised basis.

I think it is important when you do that to understand what you are really getting. Is this really an estimate of people’s likely retirement income? I think we need to hesitate before encouraging people to place too much confidence in that understanding of what these figures will be. They will be figures calculated on the basis of a single, predefined set of assumptions. The technical memorandum is well within the bounds of plausibility. It is not necessarily the technical memorandum I would have come up with if I had had to decide, but I cannot point to it and say it is nonsense or misleading. However, it is important to understand that it is only one among a range of possible views of the future, and we are misleading people if we give them any idea that this is what is going to happen. I think it is fair to say that the figure you are presented with is probably the least likely figure of all possible outcomes.

Just as an aside, it is also important that this will be a government-endorsed figure. Make no mistake: the ordinary person seeing this on their pension statement, knowing that this dashboard has been legislated for by the Government, will see an implicit government guarantee for that figure. There is no way of avoiding that. That is what will happen. Government Ministers can say for all they are worth, “No, we are just facilitating this; it is not our figure”. If, over time, these figures turn out to be woefully positive, the Government will be held to account. A similar disaster happened with endowment mortgages, and we saw what happened there. People believe the figures they are given, are gravely disappointed when they do not appear and look for reimbursement.