Pension Wise – soon delivered by private companies?
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Pension Wise could be delivered by commercial organisations to achieve “more efficient and effective outcomes” and funding for the pensions dashboards project should be considered to avoid the project failing, a departmental review of the Money and Pensions Service has said.
'The world has moved on since the freedoms were first announced'
A departmental review recommends that MaPS, which looks after Pension Wise among others, should develop an options paper for its board and the DWP Partnership Team by October 2022, “based on research into the practicalities of using commercial organisations to deliver Pension Wise”. Pension Wise is currently delivered by MaPS itself – previously by the Pensions Advisory Service which was merged to form MaPS – and by Citizens Advice.
The review states that “the world has moved on since the freedoms were first announced in 2014” and that “to date, there has been very little evidence of the Freedoms reforms being abused or of unintended consequences emerging” - avoiding mention of the British Steel scandal or a Work and Pensions Committee inquiry. It finds that “the main criticism has been a lack of take up of Pension Wise by people accessing their pensions”.
The reviewers then go on to state that there are “challenges in how pension providers hand off customers to the Pension Wise service” and recommend that MaPS should look at service redesign, including how it works with pension providers and “how Pension Wise could dovetail more effectively with their customer communications", before recommending looking at delivery by private companies. MaPS and the departments have accepted all of the 19 recommendations made in the review.
Funding of PDP may need to increase to avoid dashboards failure
Funding for arm’s length bodies is a continuous question; but the pensions dashboards project is particularly at risk if it is not properly funded, the review warns. Specific consideration should be given to the funding position of the Pensions Dashboards Programme, in consultation with the two funding departments, the Department for Work and Pensions and the Treasury. The recommendation also states that the DWP Partnership Team should lead on joint activity to agree the approach by January 2022.
The review notes that the PDP is a complex project and that “there are many ways in which it could fail”, adding that “the funding of this development stage of the project is critical. Compromises on development costs could prove a false economy if they subsequently lead to the project failing to satisfy the expectations of its architects and the needs of pension savers.”
It highlights that costs are expected to increase significantly over the immediate future, with budget implications for MaPS as a whole. “In the longer term, it is not clear what the steady state maintenance costs of the Pensions Dashboards Programme might look like,” the review says.
The cost of the PDP is currently met from MaPS’ overall budget, meaning any future increase would force MaPS, which also has responsibility for debt advice and financial education, to reduce spending in other areas.
“It is essential there is clarity and alignment across MaPS, the DWP and HMT on what the spending needs and priorities are in respect of the PDP and MaPS’ wider obligations and how they should be met. In the absence of such understanding, there is a high risk of disappointed expectations in some aspect of MaPS’ performance in the years ahead,” the review warned.
Is MaPS’ funding structure in need of an overhaul?
It goes further on funding, saying an overall review of MaPS’ complex funding structure may be needed. At the moment, MaPS receives funding from the DWP through the general pensions levy on occupational schemes, which funds pension guidance and a third of the cost of developing the dashboard. Through the Treasury, the financial services levy collected by the Financial Conduct Authority from its regulated community pays for debt advice, money guidance, Pension Wise and two-thirds of the cost of the pension dashboards.
MaPS’ funding structure “was transposed fairly directly from the levy arrangements it inherited from its legacy organisations”, the review observes, but notes that it has now been six years since Pension Wise was introduced. “It may be a case of ‘if it ain’t broke, don’t fix it’, it may also be the case that a better funding architecture could be designed which would help MaPS in meeting its statutory objectives. Currently the funding available does not impact the MaPS delivery of its services,” the reviewers state.
Although the review can’t recommend a specific restructuring to funding, it says that “in light of the complex funding structure MaPS inherited, and the various developments that have occurred over recent years, it would be sensible to now review these funding arrangements to ensure they strike the best possible balance across the diverse interests involved”.
