In a report compiled by the SPP’s Administration Committee, made up of representatives from several large corporate pension firms, the SPP analyse significant uncertainty surrounding ERI, and make a set of recommendations to the Department of Work and Pensions (DWP) and the Pensions Dashboard Programme (PDP) on how ERI should be approached from the beginning of the Dashboard rollout. The recommendations include:
On the methodology used to calculate ERI:
• From the outset, ERI should be a retirement estimate based on savings as of the current date of calculation. This would establish a figure for within, for example, 12 months of the date that it is quoted. This estimate should exclude future accrual.
In relation to the accuracy of the ERI:
• While in many cases it may be possible to provide accurate estimates, in many it will not. Estimates should be illustrations, not quotations. Suitable caveats and warnings are essential, and ideally these warnings would be scheme specific.
On the scope of ERI:
• The range of members who can be quoted an ERI on the dashboards will be limited by a range of issues, including:
Design features such as step-ups, temporary pensions and underpins which cannot be translated into a single meaningful ERI;
Lack of automation for certain groups of members where it is not cost-effective to do so;
Concerns about data where, despite ongoing improvements in data quality, some data items for some members will remain unreliable.
• Where ERI is calculated on an ad-hoc basis rather than being available directly via the Dashboard, the figures provided to savers need to be done outside the Dashboard environment to provide the highest quality information. Reducing the percentage of members affected by this could be an objective over time.
Paul McGlone, immediate past President of the Society of Pensions Professionals, said: “We remain very supportive of the Pensions Dashboard, and it is extremely helpful that the timescales for delivery are becoming increasingly clear. However, other aspects of the Dashboard rollout remain unclear and estimated retirement income is one particularly under-defined area.
“Our proposals on the calculation of estimated retirement income for DB schemes aims to encourage informed debate as part of the Dashboard rollout, and lead to an early and definitive decision by the DWP and PDP on the methodology and scope involved.”
The report also makes several wider recommendations in relation to how the challenging issue of ERI is addressed. In particular:
On the liability model:
• Releasing any information to the Dashboards will depend on the liability model, as schemes, providers and administrators will only be comfortable publishing figures when they understand their liability in relation to those figures. The SPP encourages the DWP and PDP to share the liability model as soon as possible, and to listen to the protections that schemes need.
On the stability of the approach:
• The approach adopted, whether it is in line with the SPP’s recommendation or something else, should be done so with the express intention of not reviewing it for a number of years, so that schemes have the certainty that their investments will be time well spent, can focus on improving the prevalence of ERI, and can avoid the rework of producing an ERI that will be overtaken in the short term by a subsequent decision.
The SPP sought input from a range of individuals from across the pensions industry for these recommendations, and while the views expressed were the most common across the membership, they are not universal.
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