Marie Walker of Finance Edge asks Richard Howells, Director of Insurance, Wealth, Life and Pensions at Experian UK & Ireland, to discuss some of the issues for the industry with the pensions dashboard.
Marie Walker: Security has been named as the public’s top priority for the dashboard in a recent Experian survey. What role does digital identity play?
Richard Howells: From a security perspective we all have the same problem – we all have 20 different passwords for 20 different online journeys for 20 different companies. The problem with those passwords is they can be derivatives of the same thing, so they’re actually quite easy to break, and once you’ve worked one out you can potentially guess several more.
From a security perspective, what you want is a solution which takes away the problem of having to maintain all of those different passwords. And at the same time it should give you more confidence that you – and only you – can get into your personal data. Those are the two elements that a digital identity proposition should be delivering for consumers.
“The message that came through from our research was that consumers want something that pulls together their immediate and longer-term money issues, helping them with both.”
MW: Experian have aggregated data propositions in other markets. What are the bear traps you’ve seen in other industries which we need to avoid to make the dashboard a success and allow consumers to get the most out of it?
RH: One of the first steps is that we should recognise that post-GDPR consumers have the right to question the accuracy of the data. Suppose the dashboard returns four pensions for you and you think one of them isn’t right. One of the services that needs to be built into a dashboard environment is who will pick up that query – is it picked up by the dashboard itself, is it picked up by the pension providers?
Somebody needs to pick it up and answer it, and the cost of that data query needs to be built into the overall commercial model. We know from running that service for other markets that a data query – if you can deal with them at scale, which we do – costs about £4 per query. With the numbers of people that are potentially going to use the pensions dashboard, that’s a lot of cost. So there needs to be some thought put into how that’s handled. Otherwise everyone’s going to end up with a lot of unexpected cost when we go live.
A second issue is what we call ‘fruitless finds’. The way the dashboard is currently configured, the first time you ask it to find your pensions, it checks with every pension provider – as it should – and you get your aggregated position.
Now, suppose three months later you want an update via the dashboard. With the current configuration, the dashboard will again go and ask every pension provider. 95% of them will come back with a nil return, like they did the first time. So you’re going to have millions of nil return requests being made in the industry, which will put stress and pressure into the system.
There’s a third issue. If people are going to return to the dashboard, the first time they visit it must identify all – or the vast majority – of their pensions, and do it quickly. If you’re a consumer, your digital experience is formed outside of financial services. Nobody likes to sit and wait for things to loads or process any more.
If you know you’ve got four pension pots because you’ve had four employers, but the dashboard only shows two because it couldn’t get a positive match for the other two, you’ll be disappointed – and you won’t return to the dashboard. And that means we end up building a huge white elephant that nobody actually uses on an ongoing basis. The matching process is right at the heart of whether the dashboard will be a success.
“When we asked customers how they think about money, it turns out – and I don’t think anyone will be surprised by this – that people don’t think about pensions when they get up on a Wednesday morning. It’s too long term.”
MW: The pensions dashboard has the potential to revolutionise the life and pensions market. Where else do you see this going – a financial management platform for all customers’ money, including ISAs, pensions, current accounts and so on?
RH: When you stand back from the pensions dashboard, you can see that this is another API into a broader open data environment, empowering customers with their own personal data to get value. So the customer wants to see how they can leverage the value of that data.
From our perspective that fits very neatly into some research. When we asked customers how they think about money, it turns out – and I don’t think anyone will be surprised by this – that people don’t think about pensions when they get up on a Wednesday morning. It’s too long term.
You don’t think “I can’t wait to get into work to put some more money in my pension”. What you worry about is things that impact your discretionary disposable income, day-to-day affordability. Can I cover the cost of my mortgage, can I afford to get to work, can I pay for the childminder, can I do this? That’s the really important stuff that dominates people’s ‘headspace’.
Part of the reason why people don’t engage with longer-term financial planning is because they haven’t got enough control and rigour around their day-to-day money. The message that came through from our research was that consumers want something that pulls together their immediate and longer-term money issues, helping them with both.
Once the consumer has control of today’s money and feels comfortable with it, then they’ve got the headspace – and perhaps the discretionary disposable income – to think about sensible things they should be doing in the long term. But there’s no point thinking about the long term until today is sorted out. I think the market could do more to help customers get to grips with immediate money issues.
So I see the pensions dashboard as part of a broader open data ecosystem, which allows brands to play a much broader and meaningful part in a consumer’s financial life.
” Some companies are in a better position than others, perhaps because they’ve undertaken an exercise to clean their data.”
MW: A key element of the pensions dashboard is the data which shows the consumer all their pension pots. Do you think the providers are in a good position to plug this data in? Is their data quality of a good standard?
RH: The answer to that question is absolutely not. Some companies are in a better position than others, perhaps because they’ve undertaken an exercise to clean their data, or they don’t have a lot of legacy systems, or they’re a newer company which doesn’t have 50 years of pension data to pull through. At the other end of the spectrum are those in a really difficult position, and there’s every flavour in between.
What the dashboard requires is clean data going in. Inaccurate data will result in a poor outcome for consumers. So there really is a challenge for the market – pension providers, pension schemes and everybody else – to get their data to a point that they feel confident about putting it into a dashboard environment.
In terms of data standards, it shouldn’t be too difficult. We’ve got Origo as the existing data standards provider, and we’ve got some rules and regulations from the FCA about data quality. If the role of defining standards was emphasised and given to someone, I think it could be addressed quite quickly.
If I was a pension provider, I’d be doing two things in parallel. One is getting my data up to standard. But I’d also be thinking about what I want to do with the consolidated data. What’s my digital engagement strategy?
The danger for a pension provider is if they don’t think about this second issue. What happens if all your policyholders start accessing their pensions data through an app from one of your competitors? That puts you in a weak position in terms of brand equity and your ability to influence customers’ future investing decisions. You should think about how you might pull this data through and show it to your customers and future customers – if you don’t, somebody else will.
” Future propositions are going to have to be about more than just what we give customers back in the future.”
MW: Your keynote presentation at the Pensions Dashboard Summit looks at how open data can act as a distributor for future products and propositions. What are the key messages you think people should take away from that?
RH: The first point I’d focus on is that the dashboard is a double-edged sword. For those that embrace the fact that propositions will be built and delivered in a different way going forward, driven by consumers and this open data environment, there’s a massive opportunity. For those that decide to just stick with the current model, they’ll find their embedded value fall away.
Secondly, open banking gives us a model to look at but not a model to copy. There are things we can take from open banking which will help us develop propositions for consumers, but other things which probably we wouldn’t want to adopt.
For example in open banking, as long as you can get AISP status (Account Information Service Provider) from the regulator, you can request open banking data and the bank has to give you that data. I believe that providers are not going to want to give pensions data to just anyone. I think they’re going to feel much more comfortable giving their data to a smaller number of well-established, regulated, financially secure businesses that they feel will look after that data, because the responsibility for keeping that data safe is everyone’s problem.
Third, developing the value exchange is critical. Life and pensions has no immediate value. It’s all about deferred gratification – invest your money with us, and in 30 years’ time you’ll be able to enjoy a lovely pension income. But for consumers to engage with you digitally on an ongoing basis, they want to see some immediate value.
That might be what we talked about earlier – helping them deal with their ‘today money’ so that they then trust you with their longer-term interests. Future propositions are going to have to be about more than just what we give customers back in the future. In order for us to have a genuine two-way relationship with consumers, particularly online, we have to develop more immediate value exchanges that the customer is going to value.
And my final point is that the industry really can make this happen. A lot of people will be sceptical about whether the life and pensions industry can collaborate to produce a good outcome for consumers. I’m of the opinion it can, as long as we leave behind some of the things that have perhaps prevented us from delivering market-wide consumer solutions in the past.
Absolute focus on the consumer, absolute focus on collaboration and creativity. So those three Cs will help us ensure that what we end up with the dashboard is a really, really good proposition for consumers that will help the market of the future function more efficiently.