MM leader: Pension transfers lag tech advances

Natalie Holt website

Osborne, the chief puppeteer of the UK pensions market, is at it again. The focus of his recent reactionary announcement on pension freedoms was plans to impose a cap on “excessive” exit fees. But the other strand, that of a “quicker and smoother” pension transfer process, poses no less challenge for the industry.

More details are expected to be set out as part of next week’s Budget, but broadly the Government wants pension transfers to happen “easily, within a reasonable timeframe and at a reasonable cost”. We await definition of what is “reasonable” in the Chancellor’s eyes.

As it stands at the moment, some pension schemes have a long way to go before they meet the quick, smooth process Osborne is gunning for. While transfers between contract-based, retail schemes are around six days, by comparison occupational schemes are dragging their heels, taking between six to eight weeks. For Sipps, given the fact assets are likely to be less liquid, the process can be anything between six months to two years.

The driving factors behind slow transfer times are manifold. Cynics say this is about a reluctance to let go of lucrative pensions business. A kinder argument might be that the process may be slower because trustees are taking their responsibilities seriously, plus all the usual due diligence in terms of guarantees and benefits lost that also applies.

It may simply be that some schemes have never been forced to make reasonable transfer times a priority. The upcoming Government consultation represents an opportunity to tackle this head on.

After all, it should be within the industry’s power to bring down transfer times. The dominance of online banking, and the strides that have been made on electronic re-registration between platforms over recent years, all mean it should be possible to deliver “reasonable” transfer times without skipping over the appropriate checks and balances.

Long-suffering advisers battling providers’ antiquated systems will no doubt be familiar with the mismatch between the powerful, innovative technology that exists today and an inability to secure basic information like valuations, let alone carry out “smooth” pension transfers.

At a time when we can land robots on comets hundreds of millions of kilometres away, Osborne’s wish for a more effective transfers market should not be that inconceivable. As auto-enrolment is set to bring an increasing number of smaller firms into play, it would be better if this issue was tackled sooner rather than later.