Transfers to be streamlined as more ask for quotes

HM Treasury published a response to the consultation, which was launched in July 2015, on pension transfers and early exits.

The response stated: “The Pensions Regulator will introduce new guidance for scheme trustees to help ensure transfers are processed promptly and accurately.”

Suggestions for improvement

The government suggested transfer processing could be improved in three areas: improving scheme administration; establishing a whitelist of trusted pension providers; and improving guidance and communication for individuals.

Research done alongside the consultation found that transfers between contract-based pension schemes took about 16 days on average. However, data from the regulator show that on average it took 39 days to transfer from a trust-based scheme.

The government will also seek to make trust-based schemes more transparent and accountable for their performance in processing transfers through a new reporting regime.

This regime will require schemes to report on an ongoing basis how they are performing in processing transfers, including possible benchmarks and new transfer targets.

“Pension Wise will develop additional guidance on pension transfers in order to support individuals through the transfer process,” the response stated.

Increased demand for quotes

There has been a significant increase in the number of members requesting transfer value quotations, according to a report released by consultancy LCP this week. 

After the at-retirement changes were announced in 2014 there was a large spike in requests followed by a sustained increase throughout 2015. In response, many schemes have begun publishing transfer values on benefit statements.

Matthew Demwell, UK head of member options for consultancy Mercer, said the number of transfer quotations from all schemes including DB, DC and hybrid, remained high in 2015.

According to Mercer, prior to the Budget announcement there were about 1,500 quotations a month. Following a peak of 2,500 a month after the Budget, there are now about 2,000 a month.

“This is noticeable and significant,” he said. “However, there is weak evidence that these quotes effect a transfer.”

This may be due in part to the level of support given by schemes. According to LCP’s report, nearly 30 per cent of LCP’s administrative clients are providing illustrative transfer values in retirement packs. The rest are describing the value without providing a figure.

Richard Smith, a consulting actuary at Spence & Partners, said this trend will become more commonplace. “Schemes may start to illustrate a standard suite of options in retirement packs,” he said.

February values expected to be higher

Data from consultancy Xafinity show that their Transfer Value Index recovered in January after hitting a six-month low in the previous month. The index was around £209,000 last month, more than £6,000 higher than in December.

Xafinity’s index is based on a hypothetical individual who is just coming up to retirement age with a DB entitlement of £10,000. The index looks at how that person’s transfer value might move given changes in financial conditions.

Paul Darlow, head of proposition development at Xafinity, attributed the increase to a drop in gilt yields.

“Being based on gilt yields the [transfer value] depends on how attractive gilts are to investors,” he said.

“What we have seen over the first half of February is that there has been more of a flight to safety in January and I would expect the index would be higher in February.”