Pensions are not typically front of mind for people until they start thinking about retirement. Open finance has the potential to change this, but is the pensions industry ready to come off the brakes? 

 

Open finance describes a system where consumers can share financial data easily with providers and allow them to display this on a single site. Crucially, it goes further than open banking, to include pensions, loans, investments, mortgages and more. 

 

Sounds good? For many in the fintech space, open finance is their stated goal, but the reality is still a step removed from ready access to data. Firms like Moneyhub or MoneyDashboard have created products based on open finance principles, but not all financial services companies provide their API - a set of protocols that allows two applications to talk to each other - to give customers the ability to share their data. 

 

 

“Truly open finance is long overdue,” says Jon Dean, head of retirement strategy at software company Altus. But fintech pioneers repeatedly come up against industry resistance and a lack of awareness by providers of the downstream impacts that a systems change can have, he notes. Dean suspects there are vested interests at play, with firms afraid there could be a mass exodus if consumers can transfer to a competitor at the click of a button – but instead of making it difficult to change provider, “a more appropriate response would be to improve service and value for money for the customer”, he says. 

 

Agreeing data standards to make open finance the norm could take many years, he admits. However, he also points out that the telecoms industry managed to agree a host of complex standards under GSM. “The difference is the commercial imperative, as telecoms firms saw the standards as a basis for new revenue streams. Financial services firms need to find such opportunities before being convinced to invest in building these standards,” he believes.  

 

Some parts of the industry have begun work on this, however, showing that it can be done. The Investing and Saving Alliance and Moneyhub are planning to develop a set of API standards; participants in the trials include Fidelity International, Hargreaves Lansdown and Coutts & Co. 

 

Newer firms in the financial sector are increasingly using technology and data integration to differentiate themselves from established brands, which are however slowly waking up to the fact that savvy consumers – increasingly comfortable with the digital world since Covid-19 forced many into home working and online shopping – may decide with their feet, regulations or no regulations.  

 

“Starling, for instance, integrates to Wealthify, WealthSimple and PensionBee as well as insurers Anorak, Churchill and so-sure. This has encouraged the major incumbents such as Lloyds to invest more heavily in digital services, to the benefit of millions of customers,” says Dean. Large employee benefit consultancies meanwhile have started integrating Moneyhub into their own pension fund member tools. 

 

Although open finance is gaining ground, he still wants to see a mandate for full market participation and comparative fees and charges data, not least to get consumer buy-in and avoid repeating mistakes made with open banking. 

 

 

If open finance is to become a reality, one question that naturally arises is, do we need pensions dashboards? 

 

Some fear that building dashboards is a duplicated effort and holds the risk that data does not match between dashboards and open finance applications. For Moneyhub’s chief technology officer Dave Tonge, pensions dashboards can be a good building block and a stepping stone to further opening up of data, but he suggests that expectations may need to be tempered. “You can’t expect one legislative initiative to change a whole generation’s behaviour,” he says. 

 

Tonge worries the dashboards bring up a whole other set of problems, however, that of a digital identity. One stumbling block for easier development of integrated models is the fact the UK does not have a centralised digital ID system like some other countries, meaning every financial services provider has to do some know your customer check from first principles.  

 

The pensions dashboards will use a centralised ID ‘broker’ which will support multiple ID providers – similar to HMRC’s Verify ID system. A digital ID like those used in some Scandinavian countries and Germany would avoid this complexity, reducing cost and fraud and enabling innovation, he says. “You almost have a bigger problem by not having a central system because everyone has to have and store [the customer ID],” says Tonge. “It’s a false association when people think these systems decrease privacy; there is a strong argument they can increase privacy.” 

 

 

Easier access to data would allow open finance propositions to be built that would improve people’s retirement experience, argues Tonge, and says this might mean foregoing the goal of full coverage from the outset. “At the moment it’s not easy. A lot of people don’t have assets to make it worth getting advice. There are all these guidance journeys, but they are not a great experience for people, that’s where technology can help,” he says. 

 

While improving people’s retirement experience is something that anyone the industry would probably subscribe to, not everyone agrees that partial coverage would be sufficient to do so. Scott Finnie, co-head of digital strategy at consultancy Hymans Robertson, acknowledges that it will be difficult to make all pensions data accessible - some records are still on paper or microfiche - but despite the scale of digitisation required, he says that “unless a consumer can see everything, there is a real question how useful guidance can be on top of it”.  

 

For example, if a saver has defined benefits, this could be a significant part of their pension income - meaning any potential future income shown to the saver would be materially different depending on whether their DB entitlement was taken into account or not. 

 

Finnie agrees there is enormous scope for innovation on the back of open pensions data, especially for guidance, as most people do not even know where to start with planning retirement. The current lack of access to data for guidance providers is the biggest barrier to guidance in his view. 

 

But he says if guidance is to work successfully in an open finance system, giving people an opportunity to act is paramount. “The mantra of engagement being the target is misplaced. You get engagement when people can take action. This target where people check their pension on a weekly basis is not going to happen,” he says.  

 

Instead, what people want is to not have to think about pensions, he argues, meaning it would be sufficient to give them an occasional prompt saying either “you don’t need to do more, you are in good shape” or “you were on target, that has now changed. What do you want to do about it?" The opportunity to act must also form part of the pensions dashboards, he says: “As an industry, government, regulator, it would be a travesty not to do that.”