By Julie Walker APMI DIEB, Principal at Barnett Waddingham
The story so far...
Pension transfers is one of those areas where the plot constantly thickens –
2013
‘Predators were stalking their pension schemes’ - Pension liberation was everywhere, it was organised, it was global and it was down to trustees and their administrators to pick up the crushing due diligence burden of protecting members from scammers. Even if that meant protecting them from themselves
2014
That budget – ‘the biggest pensions shake-up in a century’ – All leading to pension freedoms and the requirement to obtain financial advice on DB to defined contribution (DC) transfers. However, accompanied by a super-clear steer from The Pensions Regulator (TPR), trustees must not second-guess a member’s transfer decision.
2015
The almost impossible task of safeguarding members against pension scammers in the overseas transfer market, is made approximately 100 times harder by HMRC’s sudden withdrawal of QROPS status, for bona fide qualifying overseas schemes.
2017
Another spring Budget and the sound of another transfer shoe dropping as the overseas transfer charge, fully effective from day one, left the industry with some major catching up to do. Pension administrators were effectively positioned overnight as de-facto tax collectors for an estimated £65m per year.
2018
Where had all the scammers gone? Suddenly, every day wasn’t another sage of escalating threats and attempts at intimidation from the liberation boiler rooms. Weeks could go by without anyone threatening our jobs, reputations or businesses. Had the overseas transfer charge driven the overseas scammers into permanent retreat? Or were they just rapidly googling how to re-register their schemes somewhere within the European Economic Area (EEA) to circumvent the charge?
2019
An FOI request from Royal London to TPR, reveals £60bn of DB transfer activity since the introduction of pension freedoms, with £34bn in 2018/19 alone (close to 250% of the previous year’s figure) and more than twice as many individual transfer cases (210,000 compared to 100,000 in 2017/18).
Separately, the Financial Conduct Authority (FCA) announces that despite the standing assumption that it will rarely be in a member’s best interest to transfer from a DB scheme, 69% of members were advised to do so.
PASA DB transfer guidance
These two separate areas of concern on the TPR and FCA sides of the fence set the scene for where we are now and the background to PASA’s DB working group, headed by these two regulatory heavy hitters, leading to July’s ‘Guide to Good Practice’.
Essentially, PASA’s guidance aimed to establish detailed administrative timescales for DB transfer quotes and settlements and, separately, established a ‘transfer template’ – a comprehensive schedule of scheme and member information or enclosures to be issued in all transfer cases.
Which brings us back to the trustee table (and the collectively raised eyebrow) as trustees struggle with what feels like the inherent contradiction in the effort to streamline and speed up administrative processes on the way to what the FCA says, are poorly made transfer decisions. Trustees are concerned that they are being asked to fast-track cliff-edge choices.
In reality, and looking at the bigger picture, for providers delivering quality administration the actual process changes arising from PASA’s guidance are unlikely to be significant. Most of the content of the transfer template should already be part of the existing transfer documentation, so bringing it all together in a relatively standardised format should strip out a huge amount of the usual follow-up questions that come from IFAs, while also removing any room for misinterpretation.
This last point feels like a huge aspect of what is informing the overall DB transfers project. Although PASA is focused on administration, which is basically TPR’s side of the fence, this whole drive for consistency seems designed to both reinforce the FCA’s campaign to improve the quality of financial advice given to members, while also reducing costs. From here, it’s just a short walk to the current FCA consultation on banning contingent charging, where advisors receive higher fees if the member is advised to transfer (surely one of the key barriers to truly impartial advice).
Heading into winter 2019, we’re at a ‘watch this space’ point in the evolution of pension transfers. Events on the advisor side are likely to be where we see things changing in the transfer market. Potentially, we’ll see both a shake-up and a clamp down as the FCA systematically works through the biggest risks associated with the DB transfer process and outcomes.
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