“Time is money”, so the saying goes.
Indeed, this statement holds more weight than ever in the retirement finance sector. All being well, usually it has positive associations with pensions: the longer an individual leaves money in their pension pot, the more it can grow.
However, throughout the past decade, there have been more and more occurrences when time has been used against savers – and it has cost them dearly.
I am, of course, referring to the delays caused by ceding providers – pension scheme members’ existing providers – to release the funds belonging to clients who want to switch to an alternative provider. But whilst this has been a prominent issue for advisers and clients alike, little has been done to develop a solution.
The crux of the problem
The problem begins when an adviser, after a thorough analysis of a client’s situation, recommends that they switch to a different pension provider. Should the client decide to follow this proposal, the adviser then sends a letter of authorisation to the ceding provider, thereby kickstarting the transfer process.
But from there, advisers and their clients are at the mercy of their ceding companies.
Some delays are, of course, to be expected. Industry regulations make it impossible to release pension funds as soon as the authorisation letter is received. Ceding companies are required to conduct security checks and procedures to ensure that their client is not transferring the funds into a fraudulent account or scheme. As such, it is expected for the funds to be released within 28 days of the provider receiving the letter.
However, there are no legal limits to the maximum amount of time to delay the release of pension funds. Instead, it is often a case of what is a ‘reasonable’ time frame, and this varies from case to case, and these times can stretch out for days on end. In some cases, My Pension Expert have seen cases take an additional 85 days in addition to the standard 28 days, to release client funds.
Making matters worse is the worrying lack of transparency with this process. This means it is not clear why the major delays are taking place, and there is little advisers can do to speed up the process. All they are able to do is send letters, telephone and email the provider.
At face value, this may seem like a mere annoyance for both the adviser and the client. However, such delays come at a real cost to prospective retirees.
The true cost of these delays
The cost to clients can come the moment the authorisation letter is sent to the ceding provider. Once the letter is sent, the funds are removed from any investments within their existing scheme. As such, the funds are essentially in ‘limbo’, until they receive the green light to transfer across to their new provider. And if the market moves over this period of ‘limbo’, their pension pot will not grow accordingly.