Last month I looked at the opportunities that exist for corporate advisers to develop ongoing relationships with individual scheme members in advance of retirement. This naturally leads onto considering how to achieve greater efficiency in processing pension maturities.
The time taken by all but a handful of insurers to process open market options is shameful. While there is clearly building pressure from both the consumer lobby and an increased level of interest from regulators, it would appear that the vast majority of pension providers are determined only to address this issue when on the brink of regulatory enforcement. In my view, the situation is not helped by an apparent apathy among many receiving providers who appear resigned to expecting a lamentable level of service from ceding schemes.
It is frequently suggested that there is nothing that can be done by advisers or new providers to improve the time taken to conduct such transactions. Personally I believe this is far from the case. Different pension providers will have a diverse range of approaches to the documentation they require before transferring funds. Whilst the core elements of the transaction may be consistent, it is the minor variations required that introduce much of the pain in the process.
Each succeeding organisation, however, will have its own consistent process. Consequently, once you have carried out one transfer with a ceding provider, you know that process. Why then as an industry have we not documented a detailed library of the pension provider’s different requirements? This is something that many specialist advisers actively correlate and maintain. Having a library of such details enables them to have a clear understanding at outset of the documentation necessary to achieve the release of funds. This inevitably reduces delay.
If all detailed documentary requirements are clearly identified when a transaction is commenced, ideally with many if not all of the additional documents being generated as part of the process, it should be possible to drastically reduce the amount of correspondence between the counterparties. To me, information like this screams out to be created as part of an electronic application process.
If an adviser is exercising an open market option or transferring funds to an income drawdown arrangement, when the details of the previous pension provider are being entered into the system this could easily be linked to a list of the documentation required. It ought also to be possible to prepopulate much of the necessary documentation with the appropriate information, reference numbers etc, in order to significantly streamline the process and reduce the number of times things need to be sent back for further information.
Building electronic applications of this type really is not rocket science! Rather than continually moaning about processing delays and advocating regulatory action, isn’t it time that the pension community did something to put in place processes that could increase efficiency.
In advocating wider availability of information on pension transfer processes, it is of course important to recognise the risk of fraud and identity theft. The prospect of criminals intercepting the proceeds of a client’s pension fund almost doesn’t bear thinking about. The average credit card fraud would be a drop in the ocean by comparison.
There could be considerable benefits in building an ‘industry’ pension transfer hub. Does it really make sense for so many providers to maintain their own internal pension transfer processing capability? The investment banking industry makes use of several organisations for the transmission of large amounts of money on a daily basis. Were a centralised processing capacity, processed through a suitably secure infrastructure, established it should be possible not only to drastically reduce processing times but also reduce the fraud risk. Based on paper processes it can only be a matter of time before fraudsters recognise the size of the opportunity such transactions represent.
With the pension maturity market due to explode over the next few years these are problems which, if not addressed, will inevitably further damage relations between consumers, advisers and pension providers.
In the current challenging economic climate there has never been a time when it is more important to remove unnecessary costs, either through delays or inefficient processes. It must be time for our industry to work together to deliver a better process for all concerned.