Tracy Weller from the Pensions Administration Standards Authority explores the effects freedom and choice has had on schemes and administrators.
This is having a significant impact on the delivery of pension administration services. Member engagement and interest has meant administrators have seen requests for transfer values soar.
This has been driven by a range of factors, not least gilt yields producing attractive transfer values. Some statistics indicate that the number of transfer values taken in 2015 was double that of the previous year; and in the past six months the number of requests for quotations is reported to be 170 per cent higher when compared with the period before April 2015.
We have seen individuals responding to programmes like the BBC's Panorama with desperate calls the next day requesting an immediate halt to their transfer out
The rate of actual transfers out is reported to be up to 185 per cent compared with pre-April 2015, according to Hymans Robertson, so administrators are not just seeing more requests for quotations.
Demands on administrators have increased
As a result, members are asking more detailed questions and administrators are spending more time, particularly on the telephone, supporting members as they grapple with understanding the complexities of all their options.
Independent financial advisers are also making increasing demands on administrators, requesting more and more information, both to support members in their choices and to mitigate the risk of being accused of not providing adequate information or support at some point in the future.
There are examples of an IFA asking for 10 pages of additional information. They clearly recognise this area is a minefield, but do members?
It is vital that schemes ask if their members are making the right decisions and if they are getting the right impartial information and advice they need. There are plenty of examples of dubious behaviour carried out by scammers with targeted door-knocking, and we have seen it with our client base.
Administrators need to be constantly on the lookout for potential scams and this relies on expertise and good judgment – as, even when concerns are raised, some members will still progress with their transfer after warnings from the trustee.
The media can have a significant impact on members’ choices, and we have seen individuals responding to programmes like the BBC's Panorama with desperate calls the next day requesting an immediate halt to their transfer out.
Member information is improving
Fortunately we are seeing more demand from DB trustees to improve and increase the member information supplied, both paper based and online, particularly at retirement.
In the past, it has not been common to provide a transfer value as part of retirement communications or provide this information online, but trustees are now looking for the retirement information provided to members to be clear and show all options – including, in many cases, transfer values – and administrators are having to develop their services and systems to accommodate these new information requests.
With the increased demand from members and IFAs, administrators need to be developing their service to meet these demands in a timely and cost-effective way for schemes.
Members will continue to seek support
There are early signs in the data that might indicate more members are accessing their pension funds earlier and that there has been a drop-off in late retirements, or that transfers out are masking retirement trends.
Freedom and choice: Engagement improved but confusion remains
Two years have passed since the government introduced the pension freedoms, and although the flexibilities have improved engagement to some extent, the increased complexity has also led to confusion.
In the past it has been possible to estimate expected membership activity and cash flows much more accurately, but as we work our way through post-pension freedom and choice, new patterns are likely to emerge and have an impact on administration services and scheme management.
The industry expected a spike in demand when the new regime came into place, and we see little evidence of the demand for information and support subsiding.
If anything, we expect it will increase as more schemes proactively support members with their choices, so the industry is looking at efficient and safe transfer mechanisms to facilitate this new demand. While this is a move in the right direction, we should all be cautious to ensure the unscrupulous do not see this as an opportunity.
Is all this interest in transfers out generating more demand for more flexibility? Partial transfers are becoming of interest, and again administration services will need to modify their systems, procedures and processes to be able to deliver.
We all know more choice is creating more complexity, and more complexity creates more risk – so are we going into this with our eyes open and making the sensible and pragmatic choices for members, trustees, administrators and regulators alike?
Tracy Weller is a board director at the Pensions Administration Standards Association, and a third-party administration practice leader at Hymans Robertson
