Paul Pettitt: The road to smoother, more efficient DB transfers

By John Greenwood
7 years Ago

Quick wins in the quest for smoother, more efficient processes for DB transfers are there fore the taking says Origo managing director Paul Pettitt

Demand for DB pensions transfers has increased exponentially since the introduction of the pensions freedoms in 2015, putting financial advisers, third-party administrators (TPAs) and Employee Benefit Consultants (EBCs) under considerable pressure.

FCA figures from its 2016 paper FCA survey of firms providing financial advice¹, show that adviser firms experienced a 123 per cent increase in demand from existing clients and a 246 per cent increase in approaches from potential new clients looking to move their pensions. Firms say there has been no let-up in demand this year.

Interest in transfers has been driven not just by the legislative changes around pensions but also by the higher than usual transfer values being offered by schemes in the current environment of low interest rates and low gilt yields. Some argue it could also be further inflated by employers attempting to manage risks and scheme deficits.

This ‘tsunami’ of demand as it has been referred to, is causing significant issues for the industry. Not only are financial advisers dealing with an unprecedented volume of member requests for reviews and transfers, but TPAs and EBCs also have seen significant increases in requests for cash equivalent transfer values (CETVs), of up to 135 per cent, and increases in pension transfer volumes of up to 100 per cent – setting historical highs².

More importantly, it is the member that is suffering the consequences that these increasing demands are placing on processes – with possible additional transaction costs and delays.

Add to that the effect of pensions dashboards, which are targeted to go live in 2019. When consumers are presented with a one-page summary of all their pensions, the likelihood that we will see a surge in people wanting to consolidate their pensions and/or transfer them from DB to DC, either to access the money in the way they want or to pass it on to their beneficiaries, is high.

It is no surprise, therefore, that Regulators have spotlighted the transfer process as a high priority, keen to avoid consumer detriment of any kind.

Origo recently published a white paper³, entitled The troubles with DB transfers. Based on our recent research, the paper maps the current complexities and issues that impede the DB transfer process, explores the barriers to smoother and faster DB transfers, and sets out next steps as to how such transfer tasks and processes could be improved.

The research was conducted among 16 TPAs and EBCs, providing valuable insight into the areas where pressure is being most keenly felt and what can be done to help streamline and speed up the process.

The research showed EBC and TPA administrative resources are being considerably stretched. Clear takeaways were the silo-like nature of parts of the process, which prevented the proper calculation of end-to-end transfer times, the mandatory checks, including member ID, due diligence on the receiving scheme and advice checks, which inevitably further slow-down the process; and a “bottleneck” described by administrators as being caused by inconsistent and constant data requests from IFAs.

In order to deal with the problems thrown up by these unprecedented issues, schemes have been adopting coping mechanisms as short-term solutions. These include throwing additional staff at the problem and temporary team restructures; inclusion of CETVs in annual statements; over-reliance on spreadsheets to speed up calculations; and compiling lists of schemes agreed as being safe for transfer. But shortcuts come with inherent risks, particularly in manual systems which are already creaking under the strain of the volume of requests.

The White Paper highlighted six key obstructions to a smoother and more efficient process:

A disconnect between what financial advisers and administrators see as necessary in respect of the collation and provision of information around the transfer process for the member.
Lack of specialist resource to carry out TVA combined with unprecedented volumes.
Mismatch of regulatory requirements of the various transfer parties.
Due diligence responsibilities (as outlined above) and the time it takes to complete checks.
The need for passing of paperwork between the various parties, including the scheme member.
Member expectations and knowledge – The Pensions Regulator maps out a 9-month transfer process whereas members expect it to be as simple as moving cash between bank accounts.

These six points are resulting in increasing frustrations, spiralling administration costs and poor member experience. Given that this is a problem that is not going away anytime soon, there is an onus on the industry to start addressing them sooner rather than later, for the benefit of all concerned.

What is important is that any industry focus is not just internal, on processes, but keeps in sight the real reason why we are doing this and what we are trying to achieve, which is first and foremost to improve the consumer/member experience.

Starting with some quick wins

One relatively simple, proven and effective way to immediately create a better transfer experience across the board for all parties, is the adoption of industry agreed standards and technology.

Having a standard form or questionnaire that sets out the required information for the transfer process is a possible solution suggested by TPAs/EBCs and IFAs alike, to removing the constant to-ing and fro-ing between them and speed up the early transfer stages – ultimately, making the process much more efficient.

A key area of potential failure in the system highlighted, due to the increased volumes, was attempting to meet the three-month quote guarantee deadline. This in particular was creating pressure within advisory firms and where deadlines are missed, delays, frustrations and potential detriment to members.

Establishing a standard at this stage of the transfer process, would help cut costs, reduce errors and help ensure timely transfer requests, and so reduce the possibility of missing deadlines. Less paperwork in the transfer process would also help to improve transfer times.

A good example of this working in practice, is the Common Declaration Standard, now managed through Criterion, the industry’s new Standards and Governance body. Used ever more widely in the DC market, this significantly reduces the time and paperwork involved in making the transfer. With this in mind, the Standard is currently under review by an industry working group for possible application to DB transfers.

Moving from a manual to an automated transfers system would also considerably speed up the transfer administration process. The benefit of an automated service comes not only from the increased speed and security of the data transfer, but enabling the parties involved to have a clear eye on where the transfer is at any one time. This would also enable better management of both adviser and end member expectations, as well as provide valuable Management Information delivered to help further improve transfer performance.

Standards and technology can go a considerable way to improving the transfers process. With proven solutions such as Origo’s Options Transfers service, there are quick wins available to administrators wanting to create better efficiencies, reduce time and resource costs to the business and improve the overall transfer experience for the member.