Back in July we held an event focused on the The Looming Pensions Transfer Challenge at which Toni Clark, head of automatic transfers policy in the private pensions policy division for the department for work and pensions, outlined the DWP’s hopes that automatic transfers will boost member engagement in pensions.
However, the success of any ‘pot follows member’ pension transfer system for pensions worth less than £10,000 will depend on the ability of the government and regulators to help promote the need for improved consumer outcomes.
Most of the current mechanisms for pension transfers are not quick or cost-effective enough and have the potential to be another financial crisis in waiting. As an industry we can ill afford another major scandal and unless we act to improve the system, there is a real chance that the regulator will do so, as it has already threatened to do with investment transfers/re-registrations.
Savers and investors must be assured that they will be guaranteed a higher level of service and security in the way their savings and investments are managed. At present there is limited choice in the pension transfer market and although there are standards in place, these are not fully open.
We believe that all pension providers should sign up to, or be required to sign up to, minimum standards regarding the processing of transfers of pension assets. We owe it to savers to ensure that this functionality is available, and then to reduce the time it takes for these transfers to take place. Speaking in July, Mr Clark highlighted the importance of “building engagement in pension saving” and recognising that in the early years, people are disengaged.
The current lack of uniformity around service levels means that for some savers transfers can take days, while for others they can take months to complete. This is not good enough in a world where we can now make immediate cash transfers between banks and bank accounts. As a minimum, we are calling for a service level agreement between providers for transfers to take no more than eight days.
Through the development of open standards across the pensions industry we should be able to facilitate the automated, rapid and secure transfer of a client’s pension assets between providers, removing the need for direct regulator intervention. This is good news for savers and will improve standards across the industry.
One threat to savers being able to benefit from such a positive development and from faster pension transfers would be if it were not possible to integrate the existing Origo systems into a new pension transfer service. We look forward to continuing our work with Origo to make this happen.
Three years ago the industry recognised that there was need to help facilitate the electronic transfer of wrappers and assets between fund managers, platforms, wealth managers who hold assets on behalf of investors. We created Tisa Exchange (TeX), a cross-industry ‘transfer club’ which now has 81 member groups who between them administer over 91 per cent of platform assets and over 89 per cent of industry funds under management. It is from this position of strength and expertise that we believe the TeX service is perfectly suited to challenges posed by auto-enrolment and ‘pot-follows-member’.
Indeed, in response to member demand, this April we introduced a new member category for pension providers based on a set of open standards together with supporting contracts and services. The first transfer to use the new service was initiated by Hargreaves Lansdown and has demonstrated what could be achieved by cross-industry co-operation.
What is plain is that inertia is not acceptable. If no action is taken, savers and investors will continue to face mixed outcomes in terms of service delivery; individual pension assets will be at greater risk and there will be higher levels of complaints.
From an industry perspective, there is also the likelihood that groups will see the costs as being too high to support small pensions and small pension pots. A failure to act risks heavy-handed regulation and will put both savers and the industry through unnecessary turmoil.
Carol Knight is operations director of Tisa and a director of TeX
