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.
So, whilst clients are not seeing the value of their pension pot decrease, they are losing out on the potential gains which can achieved with the investments made by the ceding provider. In My Pension Expert’s experience, some clients have been so unlucky as to lose almost £900 as a consequence of these delays – and this is money they are unlikely to get back.
This is very worrying indeed. The Pension Advisory Service recommends that if a client feels they have unfairly lost money as a consequence of ceding provider delays, they can make a claim and await a ruling regarding compensation. However, such a process can be painstakingly drawn out, and with no guarantee of a positive outcome for the client.
Advisers can also incur a financial cost as a result of the ceding provider’s actions, too. Indeed, a recent report by NextWealth and the Personal Finance Society revealed that delays caused by providers can cost independent financial advisers over £1,500 per new client. This is largely down to the time invested when obtaining information from the provider, as well as chasing them for a letter of authorisation receipt and updates on the transfer process.
Evidently, this is a major issue for the retirement services sector, and as yet, little pressure has been placed on ceding companies to improve their actions. And this lack of action is undermining consumer confidence in the retirement services sector, as well as advisers themselves.
Undermining trust
The FCA has conducted various consultations and industry reviews outlining the need for consumers to engage with their pension, and shop around for a better deal on their provider – the logic behind this being that the more individuals research their retirement finance options, and seek regulated financial advice, the better they understand their needs which provides them with a more favourable financial outcome.
However, ceding provider delays undermine this initiative. After all, a client is hardly given any real motivation to shop around for a more suitable pension provider if they are faced with a painfully long transfer process, which could ultimately leave them out of pocket.
