The Pensions Regulator has been asked to look at streamlining the process for providing cash equivalent transfer values, after complaints from advisers that delays in schemes providing necessary information meant members were missing out.
With low gilt yields pushing transfer values to levels seldom seen, many defined benefit pension schemes will be faced with heightened interest from members in leaving the plan.
Advisory firm Rathmore Financial said the three-month validity of transfer values is often not enough to complete the advice process, due in part to schemes failing to provide sufficient information when first asked to do so.
We expect the majority of transfer requests to be completed well within the statutory deadline
The Pensions Regulator
It warned that values expiring could mean that members miss out on significant opportunities, and advisers proceeding without complete information would seriously jeopardise outcomes.
Enter the regulator
In response, Royal London director of policy and former pensions minister Steve Webb asked the regulator to consider measures to speed up the process.
“I think there is a case for a conversation between the Pensions Regulator and advisers about exactly what information they require to give advice on a potential transfer,” he said. “The regulator could then seek to ensure that schemes provide this information from the start rather than advisers having to request it.”
Webb added that while schemes may already be struggling to cope with the volume of transfer requests, regulatory action now would eventually ease this burden.
“If pension schemes knew exactly what information advisers needed they could provide it systematically and automate the process, and thereby reduce the need for additional correspondence,” he said.
Expectations clear
Current regulatory guidance already requires trustees to have processes in place to implement transfers “in a timely manner”.
A spokesperson for the regulator reinforced the message: “We expect the majority of transfer requests to be completed well within the statutory deadline. These are maximum timescales.”
Schemes should view the provision of information to advisers as integral to their efforts to support members through the decision-making process.
“Advisers should be provided with information ordinarily available to a member including summary funding statements, details on benefit structure or funding level of the scheme,” the spokesperson added.
IFAs share blame
Administrators of DB schemes have to walk a fine line between avoiding overloading members with information and disclosures they may never need, and demands from advisers to provide all the information that could ever be needed, according to Daniel Taylor, director at admin specialist Trafalgar House.
While he acknowledged the need for schemes to respond to serious transfer value considerations, he highlighted the fact that independent financial advisers also demonstrate poor practice in this area.
“From an administrator’s perspective it appears that many IFAs request a transfer value quotation as a default first step and then don’t perform any further analysis on requirements or the documentation supplied until weeks or months have passed through the guarantee period,” he said.
Trafalgar House research showed that only 15 per cent of illustrations sent actually result in a transfer.
Taylor proposed four industry-led measures to ensure all participants in the transfer process “up their game”.
They included IFAs agreeing standard data requirements to be provided by the admin market, and beginning analysis on time-limited illustrations as soon as they are provided.
Keep comms 'balanced' as DB transfer interest is up
Advisory service Intelligent Pensions has seen the number of defined benefit transfer requests it has processed increase during 2016 as members seek to take advantage of the freedom and choice reforms.
Meanwhile administrators should commit to a standard turnaround time when responding to requests for further information, and should agree a standard range of charges for additional DB transfer quotations.
Trustees have role to play
Schemes can also play a part in easing the transfer process by putting in place a preferred adviser for DB members at retirement, according to Ben Roe, partner at Aon Hewitt.
“This helps to solve the problem as the IFA is educated on the scheme benefits and data transfers can be automated so the whole process is streamlined,” he said.
He also welcomed the idea of a standardised approach to adviser information requirements, arguing that schemes providing more information is not necessarily the answer.
“The disclosure requirements are already quite onerous, so adding more information may actually be to the detriment of members who could be put off by the volume of information provided,” he said.
