Pension policy risks being 'stuck in a previous era'

Giving evidence to the Work and Pensions Select Committee, Webb pointed out that back in 2014. the combined deficit of DB pension schemes stood at nearly £400bn.

This is in stark contrast to the latest figures which show a surplus of over £400bn.

"For many of our clients, the issues we are now discussing are about managing surplus risk through derisking, rather than dealing with deficits," he stated.

"It is time for some creative policy thinking that would allow nearly £1.5trn of DB assets to be invested for long term growth rather than being increasingly locked into low-return and low-risk assets."

In response, a DWP spokesman said: “Our landmark transfer rules are helping protect people from fraudsters trying to trick them in to moving their pension pots into scam accounts.

“We have always said these must strike the right balance between providing the necessary protections for pension savers against scams, while ensuring they still have freedom and choice about where their savings are invested.

“To ensure this continues we will conduct further work with industry and the pensions regulator to consider if they could be improved, without undermining the policy intent.”

However, PensionBee said the conclusions of the review into transfer regulations focus on the achievement of reducing pension transfer scams but the government appears to be "turning a blind eye" to the negative impact for savers of longer transfer times - another consequence of the scam prevention measures.

Becky O’Connor, director of public affairs at PensionBee, said: "While the review acknowledges transfer times have increased since the regulations came in, it does not analyse the cost of delays or introduce solutions, but refers only to the prospect of ‘further work’. 

"There is clear demand from savers for transferring pensions and they have a reasonable expectation of a hassle-free experience for valid transfers. Slow and difficult transfers cannot be the acceptable fallout from achieving scam reduction targets. We can create a system where transfers are reliable and quick and scams are identified." 

O'Connor argued that until the negative consequences of these regulations are addressed, people will continue to experience frustrating and unnecessary delays when moving pensions from some providers.

Regulation review

Webb's call comes after a DWP review into its pension transfer regulations which found that 94 per cent defined benefit pension transfers went through with no issues or flags.

The review detailed that only in 1 per cent of transfers were red or amber flags raised with the remaining 5 per cent of transfers being completed outside the regulations on a discretionary basis.

However, AJ Bell head of policy, Rachel Vahey cautioned that: “The headline that flags are raised in only 1 per cent of cases muddies the truth that the regulations have introduced some unnecessary delays and barriers to a number of perfectly legitimate pension transfers.

The report card from this review reads ‘working OK but could do better -- Rachel Vahey, AJ Bell

This sentiment was echoed by Hargreaves Lansdown head of retirement analysis, Helen Morrissey, who said: “There have been reports that transfers are being delayed due to the presence of amber flags even when the provider has no concerns.

“An example would be the presence of overseas investments. The review says average waiting times for safeguarding with the Money and Pension Service have increased from two to six weeks.”

To rectify this issue, Morrissey suggested that redefining the amber flag could improve the member’s transfer experience.

She also suggested that the flag around incentives to transfer could also be reviewed so that it covers “inappropriate incentives” only.

Morrissey also suggested including an overarching provision which allows providers to override flags if after doing their due diligence they have decided there are no concerns would provide an additional safeguard against unnecessary delay.

The review additionally revealed that in total, 300 red flags were raised, almost half (47 per cent) of which were because the customer had failed to provide the right information 

A further 26 per cent of these red flags were because the customer hadn’t provided evidence that they had attended a MoneyHelper appointment, the review detailed.

The review also provided insight into the number of amber flags, 2,400 of which were raised.

The most common reason was the inclusion of overseas investments in the receiving scheme, which occurred in 57 per cent of these amber flag cases.

Other common amber flags included high risk or unregulated investments included in receiving scheme (present in 15 per cent of cases), and the scheme charges are unclear or high (10 per cent).

Vahey added: “The report card from this review reads ‘working OK but could do better’. It’s up to the DWP now to work with the industry to put these problems right."

tom.dunstan@ft.com

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