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.”
Worst offenders
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.
A Now Pensions spokesperson says: “Due to delays processing contributions for some of our members, in the past year transfers have taken longer than we’d like in some cases. In 2015, we adopted the Origo service for transfers both into and out of the scheme, and with member accounts largely up to date the transfer process should speed up.
“Some 81 per cent of transfers we undertook in the fourth quarter were completed using Origo and we encourage all schemes to adopt Origo to help speed up the transfer process for all savers.”
The other four companies, all third-party administrators, say that switching processes used by trust-based occupational pension schemes cannot be compared with those used by insurers of individual pension policies.
A spokesperson at Mercer says: “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 and members are protected, as far as possible, from liberation scams.”
According to Gary Cowler, partner at Aon, the fact that assets are spread across numerous investment managers also makes pension switching a complicated task.
The Mercer spokesperson agrees: “Each DC scheme trustee board selects investment managers and fund portfolios that best match the requirements for their membership. There is no commonality from one trustee board to another.
“Each fund will offer different trading times: some will be same-day, others may be monthly – liquidity may also impact disinvestment times. A transfer out can only proceed once all assets from all investment managers are received.”
Willis Towers Watson says the sample used by PensionBee is not representative, but adds that around three-quarters of the time taken in switching pensions “represents waiting for a response from an unconnected third party – usually either the investment manager (who needs to disinvest the member’s funds), HM Revenue & Customs (which frequently needs to verify the bona fides of the receiving scheme), or the member themselves”.
A Capita spokesperson echoes the sentiments of the other companies: “This information is taken from an extremely small sample of fewer than 100 transfers and does not accurately reflect the service we provide. Also, we specialise in occupational pension schemes, which involve additional due diligence. Personal life schemes are far more straightforward to transfer.”
However, Ms Savova argues there is a “strong commercial incentive” for these companies to delay the transfers. “Usually the administrators are paid on a per-member basis, so the more customers they keep in, the higher the fees,” she says.
“Unlike other providers, they don’t experience transfers in, so for them it is a losing game.”
PensionBee is encouraging the government to launch a consultation to reduce the statutory transfer window.
Ms Savova adds: “Right now, as long as you complete a DC to DC transfer within six months, you are still within the law. It is not acceptable in the age of auto-enrolment [for customers to be unable] to take control of their money in the way they wish to.”
New standards ahead
Last October, the Transfers and Re-registration Industry Group – a collaboration of 10 industry bodies created in 2016 – launched the Star platform, which was created to encourage good practice and monitor progress against the pensions and investment-switching framework established last year (see Box 1). Star will classify participant providers according to bronze, silver and gold standards.
Some 14 companies have already committed their support in principle to join the platform, a joint venture between Criterion and TeX. These are: Aegon, Aviva, Barclays, DST Funds, Fidelity, Hargreaves Lansdown, Invesco, Janus Henderson, Legal & General, LV, Old Mutual Wealth, Standard Life, Transact and Zurich.
Caroline Mansley, managing director of Criterion, says her team has monthly meetings with the Department for Work and Pensions, TPR and the Financial Conduct Authority. “They already pushed us to name the 14 organisations that have committed in principle, she says.
“They are looking to name and shame. We’ve asked them what they are going to do if they don’t see a name in there, and they say that it is for them to follow up [on that]. They’re observing, they’re engaged. There is no mandate, there is no regulation, but there is a threat – mandates from the pensions minister will come through and regulation will follow.”
Ms Mansley says there are different hurdles still to be overcome by the industry. She explains that smaller organisations are still working with manual solutions in many cases, and that there is a need for “new technical solutions that are affordable for them”.
The second challenge is setting measuring standards, with consistency being high on Star’s agenda.
Ms Mansley says: “The electronic transfer goes through in 14 days, but what happens before? And how is the customer communicated to? It isn’t just making it go faster, it is also the communications and the user experience of getting to the point of the transfer mechanism.”
She believes that Star will achieve its goal of having 50 participants by the second quarter of this year, and expects to be awarding some bronze stars in the third quarter. “I don’t think I’ll be awarding any gold stars,” she adds.
There are big issues still to tackle in areas such as non-cash transfers. The re-registration, or in-specie transfer, of these assets is complicated by the proliferation of fund share classes available on different platforms at different prices, and will take time to resolve. But while few are in any doubt about the scale of the problem, those who have signed up to Trig are already realising ways in which they could improve.
Hargreaves Lansdown, one of the companies who will be joining Star, has begun to analyse its own processes in this area.
Ms Mansley adds: “They were horrified to discover that they have 36 different letters that go out to customers saying the same thing.
“The level of admin around this, and the level of judgement about which letter goes out, is creating delays. Organisations that have started to look at this will find they can be better.”
Maria Espadinha is a senior reporter at FTAdviser.com
