How we can cut DB transfer delays

A period of nine months can elapse between an initial member request for a statement of entitlement to the point where the transfer takes place, and this could still be compliant with the regulations. Yet the volume of activity in the market at present means that delivering even to those standards is proving increasingly challenging.

Tight deadlines

One of the big crunch points in the process is the three-month validity of cash equivalent transfer value quotations issued by schemes.

Scheme administrators need to be given the resources they need to handle the volume of demand for transfer work

There can be many reasons why this deadline can be very tight. First, individual scheme members may not realise the urgency of action when they receive a quote. They may simply sit on the quote for weeks and then it may take several weeks more for them to make first contact with a financial adviser, especially if they do not have an existing independent financial adviser. 

Next, advisers often report that the initial cash equivalent transfer value, and associated paperwork, only provides a small part of the information they need to provide proper advice. They usually have to contact the pension fund with a series of supplementary questions, and over-stretched schemes can often take a long time to respond. 

The adviser then needs to process this information (with the whole process sometimes outsourced to a third-party transfer specialist) and come up with a recommendation cleared by understandably nervous compliance departments. 

This advice then needs to be shared with the client who needs time to make a considered choice. If the quote lapses, further cost and delay can ensue as a new quote is issued and fresh advice prepared.

Schemes could offer indicative quotes

There are several things that could happen to speed up this process.

One is that larger schemes could offer indicative quotes to scheme members. These could form the basis of conversations with advisers and could, for example, help to weed out cases where a transfer would be wholly unsuitable. 

If schemes could automate the process of generating indicative quotes, then this could greatly streamline the whole process. Members interested in proceeding could then obtain a formal quote with a three-month deadline, but would have done a lot of the preparatory work already.

A second important step would be for schemes to offer ‘pro forma’ information about the scheme and its detailed rules alongside the CETV quote.

There is essentially a standard set of questions that any financial adviser will need to ask before advising on a transfer, and schemes who do not answer those questions first time round are destined to have to deal with a barrage of follow-up queries. 

I have raised with the Pensions Regulator the idea of issuing guidance to schemes on the standard information that should accompany all CETV quotes, and the regulator is considering whether this could be included in good practice guidance to schemes next year.

Administrators need adequate resources

Third, trustees need to make sure that their scheme administrators are properly resourced to do the job. Gone are the days when a transfer request was a novelty.

Last year 80,000 people completed DB to DC transfers and this year the number is likely to exceed the 100,000 mark. These figures do not include the many more people who asked for quotes but did not proceed. 

Scheme administrators need to be given the resources they need to handle the volume of demand for transfer work. While this obviously creates a short-term cost, there are also considerable long-term administrative savings for schemes when members transfer out completely, so it is worth investing more now in the interests of both the member and the scheme.

There are many other areas of this whole process that could be streamlined. But these three simple measures would make life easier for all concerned.

Steve Webb is director of policy at provider Royal London