Ian Neale asks does the government have the authority to impose further costs on the pension industry?

"2.61 Pension Dashboard - The government will ensure the industry designs, funds and launches a pensions dashboard by 2019."

This short statement, buried in the March 2016 Budget Red Book, contains enough explosive to seriously disturb the UK pensions industry. No mention of it was made in the 2015 Conservative Party Manifesto, so what authority does the Government have for imposing this cost on us?

The impetus undoubtedly comes from the debate around 'pot follows member' – former Pensions Minister Steve Webb's pet solution to the small pot problem. Although on the statute book (Pensions Act 2014 Section 33) this has not been brought into force; indeed there is doubt that it ever will be.

There was widespread industry support for the alternative aggregator model, with two variants being proposed: a central government-run database, or a virtual aggregator. One argument for the latter was that interest in amalgamating pensions from different providers doesn't arise until the run-up to retirement. The real need for an individual during the saving phase is to be able to see what has accrued to date, all in one place, and ideally to see what future values might be.

So you could say the industry made a rod for its own back, which has materialised as the pensions dashboard. Don't get me wrong, I think it's a great idea. The drawbacks lie in the scope (defined ambition?) and the cost.

Seeing which way the wind was blowing, 14 organisations* came together under the umbrella organisation Open Identity Exchange (OiX)** in February 2016 to get started.

*Association of British Insurers, Altus Business Systems, Aviva, B&CE, Barclays, Cabinet Office, EY, HSBC, LV=, The Money Advice Service, NEST, Origo, The Pensions Advisory Service and Standard Life.

** OiX describes itself as "a non-profit, technology agnostic, collaborative cross sector membership organisation with the purpose of accelerating the adoption of digital identity services based on open standards".

This 'Alpha phase' concentrated on aggregating a comprehensive picture of people's accumulated pension savings – including DB pensions and DC pensions alongside the State Pension. For a copy of the OiX report "Creating a Pensions Dashboard", click here [http://oixuk.org/?page_id=3330] or [http://oixuk.org/wp-content/uploads/2016/05/Creating-a-Pensions-Dashboard_Whitepaper_May-2016.pdf].

It is not clear how this preliminary work was funded; presumably by the 13 industry participants. HM Treasury has refused to make any public money available. It's hard to see the dream materialising without that. In three other countries which have developed a dashboard (Australia, the Netherlands and Sweden), the state has a significant role.

The report's conclusions are founded on interviews with just 24 selected individuals, who clearly thought the Government would be running, or at least backing the service.

The OiX vision for the Pensions Dashboard is a free-to-consumer online resource that enables people to find and check their pension savings, having three core components:
• Digital Identity – to verify the user's identity before they can access their data (this will need Government backing);
• Dashboard User Interface – a set of screens, menus and commands through which the user views their information and may carry out tasks based on it; and
• Pension Finder Service – the technology that facilitates finding an individual's pension savings, collects information from pension providers (and DWP for State Pension) and delivers it to the User Interface.

The OiX report comes down firmly in favour of a built-from-scratch 'single destination' model, as distinct from a 'federated' model which might utilize systems already developed. The challenges of interfacing with different pension providers' administration systems should not be under-estimated, especially with legacy systems.

Providers are faced with additional costs on two fronts: possibly a contribution towards the cost of construction, certainly a significant cost in compliance. Some are already well placed, notably providers of DC schemes operating in the auto-enrolment market. Many of these have client management systems which enable savers to see what they have (some DB schemes offer similar access).

For the majority of pension providers, though, significant investment in systems would be required (and might have to be mandated by law). On top of this, formidable ongoing costs in operation can be envisaged.

While it might be relatively straightforward to take a snapshot value of a DC pot (for which pot-follows-member was designed), how frequently need this be done to be credible? Firms administering closed books might be reluctant to invest at all. And how about valuation of the disparate assets a SIPP might hold?

Valuation of accrued rights in DB arrangements is problematic too: even if an annual calculation were deemed to suffice, new costs in relation to deferred members could be significant.

Providers, administrators and trustees who respond to these demands for new investment should all be aware, as they begin to consider how they might construct their interface of another oncoming train bearing an even more explosive charge.

The EU General Data Protection Regulation (GDPR) will require massive new investment in systems and compliance over the next two years.

But maybe not here, depending on what happens after Referendum day.

Written by Ian Neale, Director, Aries Insight.