At the beginning of the 20th Century, many wanted to travel further and faster – the big question was just how to do this?
Should they attempt to get more power and gallop from their horses? Could they develop motorised vehicles? Or might they go that little bit further and reach for the sky?
The answer came from above – quite literally – and it was the likes of the Wright Brothers who went airborne and delivered the biggest change on the lives of all those future generations.
Forgive me this flight of fancy but are there parallels to be drawn in the world of financial services? Are we seeing the need for us to effectively ‘reach for the sky’ with the development of a pensions dashboard? Could we actually go a number of steps beyond than this option?
There’s no denying that the need for a pensions dashboard is most certainly there, and there is support for it. Both the Financial Advice Market Review and the Chancellor want one in place by 2019.
Black and white
Its purpose is to provide information for the user on what pension(s) they currently have and how much income they can expect in retirement from them.
Having everything in the one place will hopefully encourage movement from inefficient pension pots and ultimately encourage more pension savings. Seeing the figures in black and white might hopefully get enough people to look at their dashboard and say to themselves, “It will never get there fast enough.”
According to the Pensions Policy Institute, 80% of those aged 50 to-64 have pension savings that are insufficient to give them a 50% increase in their state pension.
Depending upon their shortfall they require more than double the pension savings they have to get close to their recommended target replacement income. Does this make pension savings the equivalent of that 20th century horse? I believe the Chancellor thinks so.
Introducing LISA
In last month’s Budget speech George Osborne also introduced the Lifetime ISA, increased the overall ISA annual subscription limit to £20,000, and reduced the rates of capital gains tax.
In previous Budgets he has introduced a tax-free dividend allowance of £5,000 per annum and, for the majority, an annual tax-free interest allowance of up to £1,000. These measures cast doubt on whether an ISA is always necessary and whether it will change investment and savings habits.
In recent years, pension annual and lifetime allowances have been reduced significantly. Although future indexation for the lifetime allowance has been announced, I for one would not be surprised to see further reductions in it to help the Chancellor reach his target of a budget surplus.
The problem is it’s making it more difficult for the pension savings horse to travel further and faster. The more difficult it is for the pension savings horse, the more probable the pensions dashboard could unfortunately become something of a white elephant.
That’s not a desirable outcome so we need to give out a much more positive message.
The message has to be that it is possible to save for a comfortable retirement and to do so by an age that means retirement can be enjoyed and not feared. In essence we have to tell the UK public that, from a pension’s point of view, it is possible to travel further and faster.
So, rather than just focus on pensions we need to instead develop a retirement income dashboard.
This will capture an individual’s total wealth from all sources, including pension savings and housing.
This dashboard will show that, by using all sources of wealth, retirement income goals can be achieved. It’s an approach which will allow many more to realise their goals are achievable with the result of increased engagement with savings and investments – indeed this increased engagement should also result in increased pension savings.
I accept that by 2019 we cannot deliver the ambition I have described. But on the other hand will some occupational schemes, in particular defined benefit schemes, even be in a position to upload the necessary data into a pension dashboard?
Some forms of manual intervention by the user on their dashboard will be necessary in 2019.
There is a danger therefore that getting something up and running by 2019 restrains ambition.
If the pensions dashboard can be delivered in three years’ time, then we also need a visionary design of what a retirement income dashboard could look like.
This will run alongside the delivery of the pensions dashboard and hopefully encourage the retirement visionaries to reach for the sky. In that sense, 2019 should merely be a stepping stone on a journey to a life-changing offering.
Bob Champion is chairman of the Later Life Academy
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