Pensions Dashboard – the impact on the later life lending market

The fact that the later life lending market is growing at close to 30% a year is a reflection that not enough has been saved during working careers. Retirees have to turn to other sources to finance their retirement spending.

So, why did they not save enough? The increased cost of retirement income due to low returns and increased longevity has not helped, but the position has been aggravated by underlying trends resulting from:

• Reduced employer contributions as a result of the switch from a defined benefit to defined contribution pension basis;
• Prior to the impact of auto-enrolment, the increasing number of employers who do not provide an occupational scheme;
• The reduction in pension provision by those who are self-employed and the reduction in pension contributions being made by the self-employed.

Growth in the later life lending market is driven to some extent by those who have inadequate pension savings and have to turn to their housing wealth to compensate. The amount they borrow will be driven by the extent of the shortfall in their pension savings. Auto-enrolment will increase the numbers who have pension savings at retirement, however it will not increase the numbers who have adequate pension savings. This means more will require holistic advice on how best to combine their pension and housing wealth.

But what has this got to do with the Pension Dashboard?

If an all-singing, all-dancing Pensions Dashboard was introduced more people would be able to follow the progress of their pension savings. Such a Dashboard would require all schemes, including defined benefit pensions and the State pension scheme, to be included. Add a few simple tools to help answer ‘What if’-type questions, including the changing of retirement ages and you have a recipe for people to increase engagement with their future retirement. From there it should follow that more people will increase their pension savings as they’re able to see their progress.

One the biggest cost of financial advice is the gathering of data or completing of the factfind. If this cost was reduced, which a comprehensive Pensions Dashboard should do, more people (theoretically) would be able to turn to a financial adviser. The combined result of all this should be an increase in pension savings.

However, the bad news is that it does not look like we are going to get an all-dancing, all-singing Pensions Dashboard. This can only occur if the Government takes the lead and drives the project forward, but the Government has decided it will help facilitate a Pensions Dashboard created by the pensions industry. This means it will be some time before Government introduces legislation that will make participation by all pension schemes compulsory.

A pension scheme must be administered using modern technology if it is going to make its data available through the Pensions Dashboard. For many schemes this is going to require investment. If you are an employer where the majority of pension scheme members no longer work for you, are you going to be sympathetic to a request from trustees for you to meet the expense of upgrading the pension scheme technology? Similar arguments will apply to insurers operating closed books of business on legacy systems.

If the Pensions Dashboard does not help the user obtain a picture of their future due to missing information it is not going to inspire confidence. There is talk that the initial Pensions Dashboard will not even include a State pension projection.

This Government decision means that it will be more than a decade before we get close to that all-encompassing Pensions Dashboard. Then it may be another decade before we begin to see its affects on the later life lending market because some of those increased pension savings are beginning to ripple through.

So, the Government announcement on the future of the Pensions Dashboard is a bad news, good news story. It is bad news for consumers who need more help with their pension savings. This is truly bad news. It is good news for those who participate in the later life lending market because it means the exceptional growth we have seen will continue unabated for many years to come.

However, those advising in this area will need to consider how they manage the needs of more clients who, in order to deliver their retirement objectives, require combined pension and housing wealth advice. At present, few advisers straddle these areas but in order to provide that holistic service they will undoubtedly need to.