Star, a new pension switching initiative, has written to all long-term savings and investment providers warning them that legislation will come into force if the industry doesn’t step up to decrease transfer times.
In a Dear CEO letter published on its website Star stated government and regulators have urged providers to join the pension switching initiative, and that the Financial Conduct Authority will review progress made by the industry later this year.
In March the watchdog warned it will consider further regulatory action if fund switching times don't improve.
FTAdviser reported yesterday (April 30) that DWP has summoned companies who are considered ‘laggards’ in pension switching for one-to-one meetings, and has threatened to introduce legislation to force pension providers to decrease transaction times.
Launched in October, Star is a partnership between Criterion and TeX that is working on delivering the Transfers and Re-registration Industry Group framework, and proposes a 14-day maximum limit for cash transactions and 15 days for occupational scheme transfers.
Trig is a collaboration of 10 industry bodies and was created in 2016. The framework aims to improve the customer experience by encouraging good practice in the defined contribution space.
In the letter, Star stated that current industry systems and processes are not consistent, and pension switching timeframes vary greatly between providers.
It added this could lead to slower transactions, “potentially causing detriment to customers’ values".
Star also stated that costs for all parties could be impacted by the actions of one provider in the chain.
Finally, it noted that consumers and advisers could find switching difficult because of the time, complexity and cost involved.
This could create barriers that may result in "consumers staying with products or platforms, which no longer meet their needs or which offer them poor value for money".
Star officials are in the process of implementing a framework which sets expectations for end-to-end standards, customer communications, and provides oversight and transparency.
They noted that the initiative "has already started making significant progress, with 25 companies already committing in principle".
However, there is "considerable work ahead of the industry to meet the expectations of the FCA and the department for Work and Pensions," which is why they are inviting the pension and investment organisations to join them.
In the meantime, fintech company Origo has started publishing quarterly pension switching reports.
The first analysis showed that from the 27 companies which agreed to reveal their data, Hargreaves Lansdown is the provider which takes the longest to process a pension switching request, at 29 working days on average.