In December, our CTO Jonathan Lister looked at the technical architecture for the pensions dashboard and concluded that an approach based on familiar design patterns and open APIs is preferable to the centralised model proposed in the feasibility study.
In the final of our three blogs, I explain why the proposed governance structure will fall short on delivering government’s objectives to ensure consumers are protected, industry pay all development and delivery costs, meet the 2019 deadline and, keep the UK at the forefront of the data revolution.
What does the DWP propose?
In the absence of a clear industry lead, the Department concludes that a new single delivery group will oversee and drive implementation. This will be led by a chair, steering group, implementation executive and working groups setup in time to launch the first dashboard in 2019.
The cost should be met by industry. Industry will also fund the development and delivery costs of the dashboard infrastructure, including the Pension Finder Service and identity verification, the non-commercial dashboard and all new regulatory functions related to dashboards.
Not only does this timeframe seem highly ambitious it also sounds extremely costly and potentially unnecessary. When considering the huge costs of setting up Open Banking, asking the pensions industry to pay to start again, on a voluntary basis, seems a tall order.
As Romi covered in her blog, with no commercial dashboards in sight for five years, the financial benefits for providers are unclear or at best distant. We know for some providers there may ultimately be no commercial benefit, so costs will be hard to justify.
Now I am not suggesting that government pay, but if industry are, we should reuse what already works to protect consumers and only set up new systems where nothing else exists.
What’s the justification for setting up another body?
Three reasons are given as to why the Open Banking Implementation Entity (OBIE) is unsuitable for this task and why a new body must be set up. These are:
- OBIE already has a packed programme of work,
- the pensions industry needs to build trust and clean data before they are ready to join up with other sectors of financial services and
- finally, that it would require amendments to existing legislation to do so.
Firstly, the OBIE are both willing and able to expand to other financial products and in fact, have an extended remit to do so. The pensions industry does need to clean their data, but we’ve always known this would be phased over 2-3 years. In all scenarios those with good data go first.
Whilst it’s clear how the Department came to their conclusions, the unwritten reason appears to be that they don’t want to lose control by allowing the OBIE to run it.
The arguments as to why the OBIE cannot be used are weak in the face of evidence that the vast experience and skills accumulated by the 150 people already working there to deliver solutions are reusable and extendable to the challenges of pension dashboards. They also have an extensive framework supporting an existing liability model, fit for purpose regulatory permissions and a dispute resolution system to underpin governance.
The relative ease of extending OBIE’s remit and employing more people to deliver a Pensions Dashboard in contrast to the time and cost of recruiting and building an entire function from scratch deserves further examination.
Whilst it’s clear how the Department came to their conclusions, the unwritten reason appears to be that they don’t want to lose control by allowing the OBIE to run it.
Their arguments ignore the issue of set-up costs, which industry must bear, to build a parallel delivery body and governance structure, when one already exists.
The fact is we are going to need legislation for any new body to operate successfully anyway. Legislation is necessary in all scenarios.
So how much will it cost and who will ultimately pay?
Open Banking Ltd’s public financial accounts 2017 give us some indication of what the administrative expenses for running a similar body are, £28M.
Seeing as everyone knows where their bank account is (they don’t need to search), there are only nine stakeholders with up-to-date, clean data (CMA9) and there’s a legislative order to mandate them to pay for Open Banking Ltd’s activities, this is an arguably easier task than pensions, where none of the above applies..
In addition to the set-up and running costs of the duplicate body, pension providers will also need to pay to clean / digitise their data, overhaul IT infrastructure and build open APIs with no commercial incentive yet in sight.
Even in a scenario where we have legislation then who do we think is really going to pay for it? That’s right - consumers. Since many workplace schemes are already at the 0.75% charge cap, this can only mean cost cutting elsewhere. Across the board, the quality of products and services will be reduced. We can wave goodbye to future technological innovation or focus on engaging savers - the opportunity cost is huge.
Good governance is about protecting consumers
As we saw play out with the CMA9 and Open Banking, the only way to ensure consumers were given access to their data was to set up a completely independent entity led by a team from outside the banking industry. Prior to this the banks succeeded in controlling the initiative to suit their own interests.
Likewise, in pensions, the only way to ensure we protect consumers is to have a genuinely independent governance body and not one representing industry interests. The OBIE is that independent and neutral body proven to act in the interests of consumers, with a track record of challenging - and not bowing to - incumbents.
From a regulatory standpoint, to protect consumers from the outset we must reuse existing regulation and permissions. These already exist in the form of FCA’s Account Information Service Provider (AISP) permission, Payment Initiation Service Provider (PISP), the OBIE regulatory framework and Directory of organisations Financial Conduct Authority regulated to operate in the ecosystem. Not only are these fit for purpose, and exist, they already protect consumers and as yet haven’t seen one data breach.
Using these means that only regulated entities can operate in the ecosystem and unregulated screen scraping services, which breach FCA rules, can be shut down. Consumers can also use the Directory to check the list of regulated services available to them, as they can with Open Banking.
2019 is only achievable by using what we have
The only possible way to set up the governance body, deliver a dashboard, protect consumers, ensure industry voluntarily pay for it and meet the 2019 deadline is to use an existing body.
The study proposes the SFGB have until Spring 2019 to recruit a chair. The chair must then recruit the steering group, implementation executive and working groups in following months. They must all then agree design standards, set up a new governance framework and launch a dashboard almost immediately. It’s not realistic.
In contrast, the OBIE has structural framework and staff in place and can begin once government instructs them. And let’s not forget the scale of challenges faced by the OBIE when dealing with the banks. They have the proven track record of success in bringing together fragmented and fractious industries.
The OBIE might be busy, but they have the solid foundation to take on more. Pensions are a different beast to current accounts yes, but the principles are the same. OBIE will act if asked, with industry paying a levy (similar to banks) to expand and enhance their capability to include pensions.
The Open Finance revolution will not wait five years for pensions
The final, most worrying aspect to all of this is that the inevitable cost, complexity and long delays of starting from scratch will come at real price to both UK savers and UK plc. At a time when can neither can afford it.
The DWP’s governance approach risks relegating pensions to the shadows, missing being part of the Open Finance and, eventually, Open Life consumer revolution. The DWP say the pensions industry are not ready, but what about savers?
Consumers have already waited too many years for the ability to just see their own savings online and in one place.
The UK is a world leader in Open Banking and the entire world is emulating it’s approach. Work is currently underway in Australia to adapt UK Open Banking protocols to pensions and other savings vehicles. If the government doesn’t support extending OBIE standards into pensions then the UK will lose a strategic leadership opportunity and other countries, like Australia, will reap all the economic benefit that should belong to the UK.
“Open Banking is making sure you’re creating the best possible outcomes for customers… from small businesses to big companies. We’re looking forward to a bright future with #OpenBanking”. #TechnologyisGREAT #UKFintech 🇦🇺🇬🇧 pic.twitter.com/0Q7K4bIloV
— Dept. Int.Trade Aust (@tradegovukAUS) October 29, 2018
HM Government’s ‘Industrial Strategy - Building a Britain fit for the future’, clearly sets out an objective of putting the UK at the forefront of the data revolution while helping meet the needs of an aging society.
No country in the world has yet brought pensions into Open Finance to build successful commercial dashboards using Open Standards. It is in the national interest to promote the UK as a centre of excellence in fintech innovation and bring pensions into Open Finance now, rather than see our own Open Banking standards used to build international Pensions Dashboards we must copy in five years.
Conclusion
The only way to meet the 2019 deadline is to use using an existing governance and delivery body, the OBIE, to drive this forward. Anything else risks opening up consumers to unnecessary risk, delay and cost. It forces the industry to pay to duplicate something we already have, that already works and wants to expand its remit. This is on top of huge data cleansing and API building costs with no commercial incentive.
Consumers have already waited too many years for the ability to just see their own savings online and in one place. In every other area of their financial lives consumers are being empowered through Open Data. It’s imperative we allow pensions to be brought into this data revolution now, rather than once again allowing pensions to be labelled too different, too complex and ultimately too outdated, to engage with.
