Pensions dashboards will require a consumer protection regime

The regulations that will govern how dashboards operate are taking shape, and the Money and Pensions Service has published its consultation on data standards and code of connection that will govern how the dashboards will operate.

The regulatory framework for commercial pensions dashboards remains a work in progress. The Financial Conduct Authority, which will regulate commercial dashboards, will soon consult on proposals for the regulatory framework.

But, thanks to decisions announced in the Department for Work and Pensions’ response to its consultation on the dashboard regulations on July 14, the FCA’s job has just gotten significantly harder.

How data export is regulated by the FCA will make a massive difference to how dashboards are used by both pension providers and customers

Consumer benefits...and major risks

The DWP consulted on whether or not dashboard users should be allowed to export their data from a pensions dashboard. After hearing diverging responses, it chose not to make a ruling on this and does not intend to ban data export in the final regulations. 

How data export is regulated by the FCA will make a massive difference to how dashboards are used by both pension providers and customers. Allowing the export of data from dashboards will enable pension providers and others operating dashboards to develop much more sophisticated financial planning and modelling tools.

Dashboard users would be able to log on to the XYZ pensions dashboard and export their data into the XYZ financial planning suite, where they can use reasonably current and complete data to plan their retirement. So far, this is uncontroversial. 

XYZ pensions would also potentially be able to integrate a commercial pensions dashboard into its product sale and consolidation customer journeys.

XYZ would, as of now, have a sign-up web page. This would hand off to a dashboard operated by XYZ, where its customer would bring up all of their pensions data and then press a button to export it to XYZ. This data would then be used to populate transfer forms and initiate a product sale.

It is easy to see — with little regulation over data export — how we may see dashboards being used as data aggregators for the purposes of product sales, as well as financial planning tools.

Using dashboards in this way could bring massive benefits for consumers. It could also bring major risks. Transacting in streamlined processes with your entire defined contribution pension pot is going to benefit or harm the customer depending on whether the customer makes either good or bad decisions.

To take a current example, many self-invested personal pension consolidators’ market tracker funds operate at prices that would not get them through the door if they were selling a workplace pension to an employer.

The insight behind this business model seems to be that a large minority of potential tracker fund customers just are not sensitive to price. This explains the massive spread in prices in the consolidator market for very similar funds — they are companies you might invest in, but not invest with.

Now, we see people being able to transact through dashboards as inevitable and probably desirable. But if this just leads to a flood of money from a cheaper and potentially higher-value sector of the market, to a more expensive and potentially lower-value sector, then it is going to be hard to see dashboards as a success. 

A consumer protection regime is needed

The FCA is going to have to look closely at this and decide how it wants dashboard-enabled competition to proceed.

Ideally, we would see dashboard-enabled competition as encouraging comparison between different providers, in the same way that annuity sales also require a market-leading quote to encourage customers to reflect on whether or not they are getting the best deal. Right now, sales processes seem the opposite of that. 

It is going to be an interesting autumn and the FCA has a lot on its plate. Charles Randell, the former chair of the FCA, recently admitted that more could have been done to protect savers from the downside risks of the pension freedoms.

This seems a similar case. When we create new possibilities in pensions, as dashboards surely will, we need to make sure they operate in the interests of the consumer.

Regulators must be alive to that and bring forward a consumer protection regime that anticipates the risks linked to pensions dashboards, as well as enabling the benefits. 

Tim Gosling is head of pensions policy at B&CE, provider of The People’s Pension