Calls for action on complexity at heart of DB transfer delays

Participants in the study of 16 third-party administrators and employee benefit consultants, including Aon Hewitt, Capita and Xafinity, complained about a number of different issues hindering the manual transfer process.

Since the introduction of pension freedoms in April 2015, large TPAs and employee benefit consultants experienced increases of between 35-100 per cent for transfer quotations and 20-80 per cent for actual payments, according to the research carried out by not-for-profit fintech company Origo.

DB transfer popularity has been partly driven by falling gilt yields, high transfer values and the attraction of pension freedoms.

There’s no doubt that DB transfers are taking longer than they should

John Reeve, Cosan Consulting

In the meantime, the industry has been striving to ensure best practice to protect members. The Transfers and Re-registration Industry Group was set up last year, and the Financial Conduct Authority is consulting on new rules to dig deeper into consumers’ transfer objectives and replace the current transfer value analysis requirement.

DB transfers have soared

The Pensions Regulator’s regulatory timeframe for a DB transfer is nine months. But Paul Pettitt, Origo’s managing director, said: “If you want to sort out your retirement, why should it take nine months? I don’t think the industry’s got a very strong argument.”

One of the most common complaints from respondents to the survey was that IFAs “do not have the technical knowledge and understanding of the DB transfer process”.

Pettitt said: “Trustees or administrators are having to fight with lots of requests for data that they regard as not necessarily relevant,” resulting in delays.

The research also found that, to cope with the volume of transfer requests, schemes have been making potentially costly or risky shortcuts, such as relying heavily on spreadsheets to speed up calculations, or expanding teams.

Industry standards and technology needed

Pettitt said: “From a member perspective, it just takes far too long.” However, he also acknowledged that careful thought needs to be put into whether transfers are the right thing to do and what the risks might be.

“There’s a scope for both sides of the industry to collaborate on what data is required from the scheme via the administrators, so that a transfer value analysis report can be requested, and advice provided,” he said, arguing that the adoption of industry-agreed standards and technology could benefit members.

Currently, “administrators are pulling information out of their systems”, then “sending it to the advisers who are putting it into their systems”, he said. But if a standard data set is agreed, it could make the process speedier and more accurate.

Ben Roe, partner at consultancy Aon Hewitt, said: “I’ve got sympathy for both sides. From an IFA perspective, they’ve got a requirement to provide the advice that’s right for the individual and to do that they need to understand the finer details of DB pensions.”

However, administrators have seen workloads significantly increase in this area, and they may have calculation tools and processes in place that were built at a time when transfer requests were not quite so high, Roe noted.

Manage member expectations

The Origo research participants reported that members expect the transfer process to be similar to moving funds from one bank account to another.

But Roe stressed that it is important to bear in mind the complexity of DB pensions and that the industry “needs to do a better job” at managing expectations, by outlining the steps and timescales involved.

The main delays are caused by “the number of interactions between the administrators [and] the IFAs gathering extra data”, but “the key challenge… is the complexity of the regime”, he said.

John Reeve, director at Cosan Consulting, agreed that the high volume of transfer requests is “putting stress on administrators”, and that previously “there has not been the imperative to look for an efficient process”.

“There’s no doubt that it is taking longer than it should,” he said. However, “we have to be careful what we wish for because one of the things that takes time is ensuring that we minimise the chance of pension scams”, Reeve added.

"We need to be very careful that we don’t come up with processes so easy [that] it makes it even easier for the scammers to push things through," he said.

Reeve added that "frankly, I’m not sure that industry standards will help in the short term", because it will take a while to put these standards in place. This may not be beneficial if the rise in DB transfers just happens to be a “short-term blip”, he explained.