The FCA has raised concerns about incentives paid to consumers to transfer or consolidate pensions, as part of its multi-firm review of the pension transfer process.
This review primarily looked at speed of transfers, with the FCA concluding most were completed in a “reasonable timeframe”, averaging at 20 days in three-quarters of cases.
In total the FCA said the industry dealt with almost 1m transfer requests in a 12 month period.
However this review — which looked at a sample of 18 life insurers — found some transfers were taking significantly longer: up to 160 days in some cases. The FCA said would be conducting further work with firms were there was evidence of delays.
While the regulator gave a broadly positive assessment on the transfer process, it said it was “concerned” some customers may be switching pensions primarily to collect cash back offers or other “near-term rewards” – and may not be considering the full financial implication of their decision.
The FCA added that some of the insurers in its sample also shared this view.
Cashback incentives are currently offered by a number of retail platforms and consolidators — with pension savers able to earn up to £3,000 per switch, depending on the size of their pots, and current deal.
Interactive investor (ii), Freetrade and Charles Stanley Direct currently offer cash back offers. These have been offered in the past by Hargreaves Lansdown and AJ Bell. Other providers such as Nutmeg and Wealthify have offered offer limited fee-free periods, while PensionBee has previously offered a cash bonus to customers who refer a friend to their service.
A number of workplace pensions providers, including the People’s Pension have raised concerns about such incentives in the past. It points out that many consumers can be swayed by marketing and are often ill-equipped to compare the overall value of pensions when moving funds. For example annual management charges on workplace pensions, for example, tend to be lower than those on retail Sipps, which can equate to significant additional charges over many years of investment.
People’s Pension is calling for better standardised information on value for money to be introduced before commercial dashboards.
Quilter head of retirement policy Jon Greer says: “Some pension consolidators and a handful of D2C platforms regularly offer cashback depending on the value of the pension that you transfer, and for many this could be a very tempting offer.
“However, many consumers will be unaware of the benefits their existing pension arrangements may have, and that by transferring you automatically give these up. This can include a higher tax-free lump sums or the earliest age you can access benefits – it all depends on the terms of the scheme.”
Greer adds: “The The FCA suggests that firms are rightly doing what they can to provide that information to a customer looking to transfer, but given where pension engagement is in this country, it is an uphill battle.
“The upcoming pensions dashboard is going to provide a lot more visibility to people of their various pensions, and thus there could be increased demand for consolidation services.”
The FCA also found that when providers use electronic messaging systems, like Origo, the switches are significantly faster than those using manual, paper-based processes. It added that additional checks, often made when a scam flag is raised can significantly slow down the process.
The FCA also reported that the majority of transfers it looked at were cash transfers, where holdings were cashed in before being moved to a new provider, rather than in-specie transfers.
Some providers have called the FCA to introduce new measures to speed up transfers further. PensionBee UK chief business officer Lisa Picard says: “{ension transfers across the broader landscape in many cases remain unnecessarily slow and complex. They’re now ranked as the second most difficult administrative task after moving house, with 46 per cent of savers describing at least one transfer as ‘difficult’. This friction risks billions in hard-earned savings being lost or left behind, and undermines trust in the pensions system.
“PensionBee has been championing a 10-day-switch campaign, calling for faster, electronic transfers to be made standard, alongside a reformed scam-prevention framework that protects savers without slowing legitimate transfers.”