The government has announced that a ‘pensions dashboard’ will appear in 2017. What is this new concept, is there mileage in it, and why should you be interested? We get you up to speed.
Every wondered why it’s called a ‘dashboard’? The word dates back to the horse and cart, when a wooden board was fixed in front of the driving seat to prevent mud and other unpleasant stuff from being ‘dashed’ up from the horse’s hooves into the driver and passengers. Early motor cars copied this design, and as vehicles grew more complex the board became a convenient surface on which to place gauges and controls, and so the modern dashboard was born. (Just think – it could have been called a mudguard.)
Now there are dashboards everywhere, not just for cars but for car insurance, banking and a host of other online services. And if government plans run to schedule, then by spring 2017 there should be one for your pension. Assuming it happens, it could be as big a step forward for pensioners as the invention of the horseless carriage was for Victorians.
Why would I need a pensions dashboard?
Your pension won’t be driving off anywhere (you hope) and people have been retiring since forever. So why is the government introducing a dashboard now? The short answer is, pension freedom.
Anyone with a pension pot now has effectively full access to it from the age of 55, subject to tax. Many people also have several pension pots, and some will also have final salary pensions (which work differently). There are also many different ways in which you can draw a pension – plus there’s the state pension from your state pension age (which depends on when you were born). In short, things have become pretty complicated. The pensions dashboard will be designed to help you keep track of it all.
What will the dashboard do?
The first thing to bear in mind is that this is a hugely ambitious project by the government. There are many different types of pensions, dozens of pension providers, countless different pension funds, and millions of pension savers, most of whom will have multiple pots. Simon Kirby, the Economic Secretary to the Treasury, has conceded that ‘no single dashboard [and] no government website’ could meet the needs of all savers. He has warned that the dashboard would be a gradually evolving tool – in other words, no-one should expect a finished product to appear in 2017.
Nevertheless, a basic pensions dashboard ought to look something like this. Logging in securely, you should be able to view all your pension pots in one place. The dashboard should display the balance of each pot, the funds in which the pot is invested, past performance and a range of other information. Other possible features might be a projection of the size of each pot at a chosen future date (e.g. age 55 or whenever you choose to access it).
This should make it much easier to estimate exactly how much you will have saved up by the time you retire. The information will also be useful in helping you make key decisions in the run-up to retirement, such as:
- Do I need to increase my pension contributions?
- Should I move some pension pots, leave them where they are or combine them all into one?
- When should I begin drawing on my pension savings?
- How should I access my pension?
These are all big decisions, so you will probably also need to seek advice in each case. This is another area in which the dashboard may prove useful.
The advice allowance
Also pension savings in general cannot be accessed before the age of 55, the government will allow everyone with a pension pot to withdraw up to £500 tax-free before this age, in order to help pay for pension advice. It seems likely that the dashboard will facilitate this process, by making it easy to choose which pension pot to access, and reducing the risk of fraud by ensuring that the money is spent on advice. Having all your pensions in one place should also help to smooth the advice process considerably, making it quicker and (perhaps) cheaper in some cases.
What to do before the dashboard appears
The government has recognised that pension freedom by itself has not been enough. The initial response to the reforms was a rush to access pension pots, but without a great deal of planning or forethought. For people to feel in command of their pension choices, they need to be able to see all the information in a convenient place – just like a driver being able to view the dashboard of a car.
The first year of pension freedom saw a surge in people accessing their pension pots in new ways. However, the most popular method of withdrawal was also the least sophisticated – taking money straight out of the fund, without even setting up a drawdown scheme. More than a third of pensioners chose this less-than-perfect route, indicating a lack of planning and also a failure to shop around. These people had been given pension freedom, but were arguably wasting it through a lack of knowledge and understanding.
The dashboard ought to give people greater awareness of their pension freedom and encourage them to take real control. But as it’s likely to be some time before the dashboard is fully functional, savers may want to engage with their pension arrangements sooner. Many financial advisers offer a free pension health check; this can serve as a kind of ‘bespoke dashboard’, giving you an overview of your pensions and your future options. An independent financial adviser can also go on to give you formal, tailored advice – something that no dashboard can do.
This article was first published by unbiased on the 4th October 2016.