Costly, inconvenient, outdated, frustrating and illogical.
These are just a few of the words I would choose to describe the painfully slow process that consumers face when trying to move their pension savings.
When will regulators finally make consumers’ pension switching rights clear?
Seven years after first calling on the pension industry to speed up its transfer times, the Financial Conduct Authority has made its stance on rapid pension transfers abundantly clear in its most recent guidance on the consumer duty.
It expects pension transfers to fall under the responsibility of firms to “deliver good outcomes” for consumers. In fact, the FCA even detailed examples of how firms can avoid causing harm, including “consumers finding it too difficult to switch to a better product or a different provider because the process is too onerous or unclear”.
There will of course be those that hide behind the vagueness of the term “good outcomes”, but this latest communication sets out the expectation for firms to take “existing decisions and guidance from the Ombudsman” into account or risk acting in “bad faith”.
Slow transfers
Following a 45 per cent increase in overall pension transfer times since 2018, the Financial Ombudsman Service has presented several rulings on this topic, including DRN3024818, which upholds complaints about transfers that take more than 10 days to complete.
We know the persistent problem of slow transfers has generally been with respect to non FCA-regulated pension providers, especially third-party administrators. Yet the FCA has now stressed that firms must consider the implications for consumers “whether or not they are a direct client”. This includes beneficiaries of trust-based pension schemes where the FCA authorised firm’s client may be the trustee, setting an exciting new precedent.
If there was any doubt left for pension providers, FCA-regulated employee benefit consultants or anyone else under the purview of the consumer duty, delaying consumers from switching services was explicitly defined by the FCA as “poor practice”.
Processes that discourage consumers from exiting a service, such as requiring customers to use registered post to change services, are clearly incompatible with these guidelines.
Yet consumers are still asked to do this, with one PensionBee customer even being blocked from moving her pension as she was unable to send the only copy of her marriage certificate by registered post.
These outdated practices are wildly inconsistent with the cross-cutting rules outlined by the FCA, which focus on enabling and supporting consumers to “pursue their financial objectives”.
The guidance reiterates what should be obvious to us all: firms should treat customers fairly, including enabling the transfer of funds “without facing unreasonable barriers”.
If firms are required to make it as easy to switch out of a product, leave a service or make a change, as it is to enter in the first place, there are clear implications for auto-enrolled workplace pensions, where a consumer has done nothing to join.
Rather than instilling a ‘pension switch guarantee’ through the back door, in line with the consumer duty, the FCA, the Pensions Regulator and most importantly the Department for Work and Pensions should take a cue: making consumers' rights with regards to switching pensions clear once and for all.
Romi Savova is chief executive at PensionBee