The current laissez-faire attitude of progressing member requests to transfer pension benefits from defined benefit (DB) plans is just not good enough according to Guy Opperman, the Minister for Pensions and Financial Inclusion.
The Government is now suggesting that DB to defined contribution (DC) transfers should take no longer than ten weeks, with Opperman commenting "the idea that this is just too complicated for us to do any quicker... is not acceptable on a long-term basis... trust me you will be required to go faster at some stage.”
The good practice guidance for DB transfers, released last week, should help considerably to reduce the current timescales. Trustees and administrators are being encouraged to adopt the guidance voluntarily but the Government has hinted that if all parties do not work together to improve the transfer process, it may pass legislation introducing more stringent requirements.
The number of individuals being targeted by pension scams and subsequently losing a significant portion of their retirement income is still increasing. According to Opperman, scammers are exploiting delays in processing transfers by using the delay to suggest to the member that trustees are deliberately discouraging members from exercising their legal rights, creating an impression that trustees want to hold on to the member's money.
The release of the guidance on DB transfers coincides with a new joint campaign by the Financial Conduct Authority (FCA) and the Pensions Regulator (tPR) to help prevent pension scams which are becoming ever more sophisticated. The regulators have published materials that trustees should consider using to warn members of scams.
Setting out four key steps to protect against pension scams, the materials can be inserted in member statements and transfer packs. The template issued by tPR as part of these materials can be found here and the FCA's Scamsmart webpage can be found here.
The new guidance
The Pensions Administration Standards Association (PASA) has published Defined Benefit Transfers: a Guide to Good Practice in order to:
- improve the member experience through faster, safer transfers
- improve efficiency for administrators
- improve communications and transparency throughout the transfer process.
The guidance is the first of two parts, focusing on standard cases of DB to DC transfers. Part two, which will cover non-standard or complex cases including partial, overseas and non-statutory transfers, will be published later this year.
Legal time limits
Even before the introduction of the pension freedoms in 2015 and the current epidemic of pension scams, there was criticism of the length of time taken to process transfers. There are legal time limits for effecting transfers (currently, for transfers from DB schemes, this is a maximum of six months) but these are not always met.
The seriousness with which slow transfer times are treated is shown in the recent case of Mr R (PO-22695) where the Pensions Ombudsman directed the plan trustee to pay a member £3,000 in compensation due to the "inexcusable" failure to process the member's transfer request within the six month statutory deadline.
The Ombudsman has been known to criticise trustees where there was inadequate justification for taking as long as it did to transfer, even where that was within the six months. The six months is a maximum and not a target!
What does the guidance say?
The complex requirements for transferring from a DB plan together with the need for strong and ever-increasing governance made drafting an efficient and standardised transfer administration timeframe challenging. The guidance is intended to find the balance between member protection and an individual’s statutory right to transfer.
The guidance includes a "ground breaking" standardised DB transfer template comprising two documents. The first sets out the plan details. This plan data should only need to be set up once and can be provided thereafter whenever an adviser requests information about the plan. Where the plan has more than one section, the template should be completed for each section.
The second document sets out member information in sufficient detail to allow an adviser to obtain a comprehensive overview of the individual's benefits under the plan.
The aim is that the template will lessen the number of adviser information requests and reduce the time spent on processing DB transfers. There are also template letters which can be sent to members during the transfer process.
Direction of travel
The guidance is welcome for the clarity and transparency it provides for both plans and members. It sets out the expected standards, with the aim of creating quicker, better communicated and more efficient approaches to the transfer process.
The fact that the regulators, in particular tPR, have been heavily involved in the development of the guidance and the template is an indication of the direction of travel - trustees can expect far greater scrutiny of their transfer processes.
Please get in touch with your usual contact in the pensions team if you would like to discuss anything further in relation to transfer timescales, trustee duties or PASA's guidance.