Customers are getting a raw deal on in-specie pension transfers, according to one consultancy, which claimed it takes 10 times longer to transfer a pension in-specie than it does for a stocks and shares Isa.
Ben Cocks, founding director of Altus Business Systems, argued the impact of poor turn around times on in-specie pension transfers on customers will increase as the effects of pension freedoms play out.
The consultancy firm undertook research with self-invested personal pension providers to better understand how well customers are served by existing pension transfer arrangements.
It conducted telephone interviews with “10 of the leading Sipp providers”, typically with the head of operations or transfer team leaders. Of these, three were specialist firms and seven were platforms offering a wider range of account types.
The results showed that, on average, in-specie pension transfers (involving nothing more complicated than UK funds and equities) are taking between six and 18 weeks to complete – compared with the typical in-specie Isa transfer time of less than five days.
Mr Cocks stated the considerable out of market risk incurred by transferring pensions as cash seems to be considered “a lesser evil” than waiting many months for an in-specie transfer, adding advisers are not encouraging customers to transfer in-specie and take-up is still relatively low.
According to Mr Cocks most Isa transfers are conducted electronically using the Tax Incentivised Savings Association’s open standards transfer framework, whereas in-specie pension transfers are carried out on paper forms, despite the fact the Tisa framework also supports pensions.
Mr Cocks admitted there are undoubtedly some aspects of pension administration that are more complex than for Isa transfers, “but there is no good reason for in-specie transfers of portfolios of simple assets to take significantly longer”.
He added this was the conclusion of Tisa’s cross-industry working group when it set standards for pension transfers broadly similar to that for Isas. “Surprisingly, the FCA either hasn’t spotted the problem or doesn’t see it as a priority, and this is almost certainly the root cause of the disparity between pensions and Isas.
“As part of the Retail Distribution Review, the FCA mandated that platforms must allow customers to transfer assets in-specie to other providers but the focus has been on Isas and unwrapped assets and, for the most part, pensions have been ignored.”
Carol Knight, operations director at Tisa, agreed with the research findings but refuted the suggestion that the regulator was overlooking this issue.
“The FCA is aware and have been researching pension transfer times,” she said, adding that “we’re actively engaging with them on this, so the next step is the outcome of these discussions.”
Paul Pettitt, managing director at Origo, suggested the market for electronic in-specie pension transfers is in the very early days.
Therefore, he argued that there is nothing holding back electronic in-specie transfers of pensions, rather the decision is in the hands of the pension holder, their adviser and potentially the type of assets within the portfolio – which may not be easily re-registered.
“As at the moment, in-specie pension transfers tend to be carried out using paper-based methods, not surprisingly, many are cashed out for transfer,” said Mr Pettitt. “Also, in order to effect an electronic transfer, the platforms and providers involved both need to have that capability. If one is still paper-based then, clearly, that will delay the overall transfer time.”
Martin Tilley, director of technical services at Dentons Pension Management, said he was surprised at the six to 18 week transfer time finding, as his firm has no evidence of any in-specie transfer of stocks/shares coming anywhere close to a six-week period.
He noted Dentons was not part of Altus’ research, suggesting it may have been focused on the pure platform-to-platform Sipp providers, rather than bespoke providers, “who tend to drive these things more proactively”.
Mr Tilley agreed there is a two speed situation, where advances have been made in the electronic transfer of Isa portfolios, but not yet been fully adopted in the regime of pension transfers.
“The comparison of taking a quick cash transfer which is risky as being out of market is also compounded by the cost of sale and repurchase, meaning that in the vast majority of cases the transfer in specie is the by far desirable route.”
Claire Trott, director and head of pensions technical at Talbot & Muir - which also was not involved in the research - said it is not fair to compare a complex wrapper such as a Sipp with an Isa.
“All providers would love to process transfers to and from their schemes as efficiently as possible, but in many cases the assets are held by a third party such as a stockbroker or discretionary fund manager and the transfer time will depend on if they are being changed at the same time as the pension provider, as well as how the ceding scheme deals with in specie transfers and what their requirements are.
“I won’t try and pretend that we can currently do a transfer in five days, but in cases where we can just change the designation on the account it will be significantly quicker than the six weeks quoted, more like one or two weeks,” she said, adding that they have recently become part of the Origo transfer system.
peter.walker@ft.com
