In an era where individuals can book a holiday in minutes, pay bills instantly and create a savings account in seconds, why can’t savers transfer their defined contribution pensions between providers without taking weeks or even months to do so?
This is the question that Guy Opperman, minister for pensions and financial inclusion, has asked pension companies that are considered “laggards” when it comes to pension switching – in this instance concerning schemes that don’t have guaranteed benefits.
Mr Opperman said in January: “Some firms take more than 100 days to complete pension transfers – totally out of step with the rest of the financial services industry. That’s unacceptable, which is why I’m holding their feet to the fire on this.”
For now, the minister has contented himself with sending a letter to five such unnamed firms, asking them for explanations. But pension experts argue that new legislation will come if the industry doesn’t regulate itself.
Two different worlds
Romi Savova, chief executive of consolidator PensionBee – which publishes an annual ‘Robin Hood’ index disclosing the providers with the biggest delays in processing switching requests – argues that the industry is split in two.
She says: “You have the good guys, people who use electronic transfers where the average transfer takes 12 to 14 days, and then you have this other half of the industry that still continues to do everything on paper; they will not adopt electronic transfers.”
Aiding those in the former camp is the Origo Options Transfers service, used by more than 95 firms, including major pension consultancies, life companies, platforms and self-invested personal pension providers.
Financial advisers are clear that using different services can have an impact on if and when delays occur.
Mike Lacey, partner at Berkshire-based financial advice firm Bowman Pension Consulting, argues that switching times are coming down, mainly due to the introduction of the Origo service.
He says: “This is to be welcomed – the whole DC advice space is evolving and increasing rapidly as more people consolidate and make use of pension freedoms. For providers to refuse to use modern technology and rely on paper-based transactions is pretty poor.”
Gem Durham, independent financial adviser at Obsidian, has a similar view: “I did a DC to DC transfer recently and one of the providers did not use Origo – the process felt positively archaic.”
According to data provided by PensionBee to Money Management, Now Pensions, Mercer, Aon, Willis Towers Watson and Capita were the biggest offenders in 2018 (see Table 1), with average switching times ranging from 46 days to almost 75 days – though some providers contest the figures.
In the top spot is Now Pensions, a master trust with almost 2m members. The provider worked with the Pensions Regulator during 2018 to solve historic administrative issues, for which it received a £70,000 fine.
Back in April 2016, pension contributions for almost one in three of the master trust’s members – totalling an estimated £18m and affecting more than 265,000 people – had not been collected, and there were ongoing problems with both the collection of contributions and with ensuring the correct amounts were invested for members.