Switching out

Many people with a pension, particularly those coming up to retirement, have held that same pension for decades, perhaps suffering years of poor performance and outdated costs. Switching pension provider is of course a possibility but it involves a large amount of time and effort. It can also strike fear into the hearts of some advisers wary of misselling accusations. Advise a client to switch products too often, thereby potentially benefiting from commission, and an adviser could be accused of churning. But failing to advise clients to switch when they could clearly be getting a better deal with a different provider is arguably no less a case of misselling.

Technology products to help people to switch are still few and far between. But they do exist, and advisers should be keeping abreast of any developments that will make their job easier.

The switching situation

Unfortunately, the Association of British Insurers (ABI) does not keep statistics on how many people switch their pension provider and believes that no such data is available. The ABI has however taken steps to make switching pensions a more flexible process. It published an updated version of its statement of good practice on pension transfers in June 2006, which attempted to make the rules on switching pension providers clearer to both advisers and clients. The ABI believes that more and more people will start consolidating their pension pots, meaning that there will be fewer pensions but with more money in them, which the body sees as a good thing for clarity since it will allow investors to keep track of their pensions more easily.

Ian McKenna of the Financial Technology Research Centre argues: "Using switching technology can generate significant income for advisers and is actually a great way for them to move to a trail remuneration basis as well". He adds, "The only people who lose out of this are the old pension provider who have been overcharging the client".

But despite attempts at fostering greater industry awareness about how to switch pensions, not enough people are switching providers. In part, this is due to the large amount of time and effort spent on research when effecting a switch manually. And technology, which can speed up this process, is thin on the ground.

Scarcity of providers

Very few technology systems are able to provide what advisers consider to be a useful tool for clients that want to switch their pensions. Some life offices offer hypothetical projections based on what would happen if a client switched the funds in their pension, but these of course only cover those products that the specific life office offers.