But it will fall to industry to address the grim state of pensions portability, says Max Lack of Heka Global
Earlier this week, major UK pension reform legislation breezed through its second reading in the Commons. In the run-up, the government had briefed that the Pension Schemes Bill would deliver a £29,000 (€34,000) uplift in savings for the average worker. The number was greeted sceptically. At a minimum, it assumes the reforms land perfectly: the emergence of £25bn-plus megafunds, the elimination of small pots, the use of enforced transfers in the context of value for money.
Improving pensions portability – the capacity of pensions to move cleanly and reliably across different funds, consolidators and insurers – is the unaddressed prerequisite to making a success of the reforms.
Encouraging mid-size funds to consolidate into £25bn-plus megafunds, capable of investing more heavily in UK infrastructure and housing, means bulk transfers. Small-pot consolidation – countering the proliferation of economically inefficient sub-£1,000 pension pots – means identifying and merging members’ pots across different funds.
Reforms touching on superfunds, surplus extraction and value-for-money reporting all assume portability in their details.
The current state of pensions portability is grim, because of the condition of the underlying data. Without consistent member identifiers, the industry is reduced to reconciliation by spreadsheet and couriered boxes, which kills portability. A typical scheme holds its core data across 10 file types and seven silos; administrators speak ruefully about unreadable antique files and corrupted data sets.
“Providers are not negligent; the rot is structural”
Max Lack, business development manager at Heka Global
More than £31bn of defined contribution (DC) pots are informationally stranded, says the Pensions Policy Institute, and a 2022 survey from the Pensions Administration Standards Association puts the share of records missing at least one key identifier at 25 per cent. Coverage of mobile numbers and emails – essential for two-factor security – is so patchy that they’re considered luxury identifiers.
Providers are not negligent; the rot is structural. Legacy trust rules, no member-verified source of truth and an absence of enforceable interoperability norms mean even well-funded schemes stumble. Until that gap is closed, data atrophy will keep outrunning good intentions.
Without addressing the portability challenge, the Pension Schemes Bill remains a wishlist, not a programme for change. So, what could the government do?
Solutions
A state-backed Pension Data Clearing House should be the first priority. It would hold only scheme and member identifiers in one permissioned ledger, reachable through APIs that are open solely to vetted providers. Operating from shared ground truths, bulk transfers could be priced and mapped in weeks, not years.
Turning the Pension Dashboard data checklist into a legally binding minimum-viable data standard would follow naturally. Writing that uniform layout into regulations, and linking compliance to the dashboard connection deadline, would finally give the market one language.
More humbly, the Department for Work & Pensions (DWP) has regularly considered the introduction of Unique Pension Identifiers (UPI), and walked away on the grounds that it would not cure the historic mess. One has to look to the future eventually, though. Stamping a lifetime UPI onto every payroll contribution, tied to a verified One Login profile, would stop the problem from compounding. Paired with the Clearing House, every new pension contribution would arrive bearing a single immutable key.
The unglamorous work of building a digital data spine has entered its beginning stages
Realistically, it will fall to industry to solve the portability challenge. The Bill is too advanced and heavily loaded for a new data-infrastructure section; all the state can do is set clear rails – implementation belongs to industry. Providers squaring up to the Bill should note the following data trends.
Data hygiene
The legacy data clean-up is being driven by AI-based data enrichment. The next generation of web-intelligence start-ups are employing AI to trace members’ digital footprints and use machine-learning-based identity resolution to pinpoint missing details around contactability, life status, relationship status, geography and a host of other fields. Plugging those data gaps is the quickest route to improving portability.
Clean-data warranties – already prevalent in the defined benefit (DB) de-risking market – are likely to drive the improvement in standards. DB market insurers now adjust premiums – or insist on escrow – when member files are incomplete. Expect the same mechanism to turn up in DC consolidation deals, at which point forward-deployed data enrichment will become a major differentiator in the market.
Looking to the future, the introduction of a permissioned member data wallet is a worthwhile target. Let members push self-verified details (email, mobile, beneficiary updates, etc.) to their providers, and half the data problems disappear. It would need to be incentive-based (think of the way health insurers exchange premium discounts for fitness-tracker data) but it would still be more cost-efficient than old-fashioned data-hygiene exercises.
The unglamorous work of building a digital data spine has entered its beginning stages. Pension funds’ responses will determine how they fare over the next decade. Data-centric providers will enjoy the benefits of enhanced portability. Laggards will eventually find sub-standard data a gating item to all commercial decision-making. If industry meets the challenge with conviction, the government’s £29,000 promise may be achievable.
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