Pension providers named and shamed over transfers

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Pension providers named and shamed over transfers

Moving a pension from one provider to the other can take as long as 52 days or be as fast as 13 days, with times varying widely between providers, pension consolidator PensionBee has found.

In its analysis of the pension switching market - which involves moving defined contribution (DC) pots between providers - the firm found XPS Pensions Group (formerly Xafinity) was the provider with the worst switching time, taking an average of 52 days to release the funds.

The fintech provider published its Robin Hood index, which analyses switching times, average annual charges and exit fees from 35 UK DC providers, today (1 August).

It analysed a sample of 7,292 transfers to its platform to find the worst performers – with Now: Pensions in second place taking 45 days on average, followed by Mercer, with 44 days.

On the more positive side, the best performers were Aviva, Scottish Widows, B&CE, Canada Life and Phoenix Life, who all managed to conduct these transactions in less than two weeks on average.

Romi Savova, chief executive of PensionBee, said: "Things are definitely changing for the better in the pension industry, but a lot of work remains to improve switching times and completely eliminate all forms of exit fees.

"There are a handful of providers who continue to treat customers unfairly and we are determined to stay at the forefront of customers’ rights to have better pensions and ultimately a decent retirement."

But Paul Cuff, co-chief executive at XPS Pensions, questioned the validity of the data, saying PensionBee had only analysed six individual pension switches, "each with its own characteristics".

He said: "Around half of the time between initial contact and the transfer being paid the process was out of our hands – for example, members choosing what to do once in receipt of a quote. 

"We are dedicated to improving member outcomes and are supportive of what PensionsBee are trying to achieve in terms of raising standards, but care needs to be taken on research like this when the sample size for our firm is so small."

Position

Provider

Average pension switching time

1

XPS Pensions Group

52 days

2

Now: Pensions

45 days

3

Mercer

44 days

4

Willis Towers Watson

41 days

5

Aon Hewitt

41 days

PensionBee declined to disclose how many cases it had analysed relating to each provider but guaranteed each individual firm had a sample of at least five cases.

Mercer and Willis Towers Watson also criticised the consolidator's index, saying it doesn't compare providers like-for-like, or provide an accurate assessment of the market.

A spokesperson at Mercer said: "Without understanding the samples used, the research may not be comparing apples to apples.

"It is interesting and, we think, pertinent to note that in this research, the slowest are third-party administrators of predominantly trust-based occupational pension schemes, while the fastest are insurers of predominantly individual pension policies.

"There is a crucial difference there. The duty of care that trustees and their administrators have to their members is different to an insurer’s to its policyholders. 

"For trust-based occupational pension schemes there are specific considerations to take into account, and processes that must be followed, to ensure transfers are settled appropriately."

Brendan Mooney, head of technical pension administration operations at Willis Towers Watson, agreed with the comments made by Mercer.

He said: "The defined benefit and trust-based DC contribution pensions that we administer can take longer to transfer than some other DC pensions – for example, because assets are held by third party investment managers and not directly controlled by us.

"In addition, some of the pension schemes we administer are decades old and do not have electronic records of members’ entitlements so a high level of investigation and digitisation can be required."

Besides being second on the list of worse offenders in transactions times, Now: Pensions was also considered the most expensive by average annual charge, with 62.1 per cent, according to calculations from PensionBee among a sample of 1,056 pensions.

But a spokesperson for Now: Pensions said PensionBee's calculations were "inaccurate and misleading", as they were based on "92 people with very small pots", which were transferring out.

She said: "As members continue to save with us and as auto-enrolment minimum contributions increase, the charges as a proportion of their pension pot will reduce. The dual charging structure is very cost effective over the longer term."

Regarding pension switching times, Now: Pensions said due to delays processing contributions for some of its members in the past year, transfers have taken longer than the provider would like in some cases.

She said: "Last year we adopted the Origo service for transfers both into and out of the scheme and once all member accounts are up to date the transfer process should speed up."

PensionBee also examined a sample of 305 exit fees, with Phoenix Life featuring as having the top five highest charges.

The biggest charge levied by the closed-book provider was more than £12,000, which equated to 13.5 per cent of the total pension fund value.

PensionBee said the research "further indicated that the highest exit fees are on with-profits pensions termed 'market value reductions' [MVR], meaning they escape the FCA’s focus and rules for now".

A spokesperson at Phoenix told FTAdviser that the firm is unable to confirm if the exit charges quoted are correct since PensionBee doesn't share their data.

She said: "The report lists MVRs as exit charges, which they are not. They are in place to ensure policyholders take a fair proportion of the fund when they exit and policyholders that remain are not penalised. 

"Phoenix has significantly improved the financial position of its many with-profits funds, to the extent that 75 per cent of our with-profits policies are now paying an annual bonus again and very few policies have an MVR applied on early exit, however in some cases, the combination of generous guarantees and low investment returns over a significant portion of the policies’ lives means that MVR must be applied."

Position

Provider

Exit fee (£)

Exit fee as (%) of total value

1

Phoenix Life

12,245

13.5

2

Phoenix Life

10,543

34.9

3

Phoenix Life

9,413

35.8

4

Phoenix Life

9,206

30.1

5

Phoenix Life

7,239

17.2

Mike Lacey, partner at Berkshire-based financial adviser firm Bowman Pension Consulting, said there was "no excuse" for the kind of delays being detailed in the research.

He said: "With modern systems and methods of communication, there is only one reason for these delays - to ensure the ceding provider retains the funds as long as possible, to squeeze out a little bit more cash from the funds they’re about to lose.

"Commercial debts can have late payment interest added under the Late Payment of Commercial Debts (Interest) Act 1988 (as amended) at 8 per cent a year – why not give a deadline of say 28 days to providers, requiring them to pay interest if they exceed that timescale?"

maria.espadinha@ft.com