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The Transfer Conundrum - solving new problems for old processes?

Friday, July 21, 2017

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PASA's Kim Gubler discusses making DB transfers simpler for all involved by working together as an industry.

DC Freedoms, scams, cashflows and lack of automation all impact on the transfer process. People are talking of the 'perfect storm' - at risk of sounding dramatic, PASA believes the perfect storm has hit pension transfers and a lifeboat is sought.

PASA is finding a better way for processing transfers, being involved in the two biggest initiatives seeking to speed things up.

Alongside PLSA and SPP, we're giving an occupational scheme perspective to ABI Transfers & Registrations Industry Group (TRIG) and are also contributing to the work on transfers by the Common Declarations Working Group, facilitated by Origo.

Our objective – to make things easier for administrators and improve the transfer process so members receive better outcomes. Of course there are unavoidable constraints, and people need to understand this when they request a transfer.

It's a fact of life that there are certain protocols when transferring occupational members' benefits – particularly from a DB scheme to an insured DC arrangement. The challenge – a process between two different products, each under their own Regulatory spotlights.

DB to DC transfers over £30,000 are subject to the Regulated advice of a Transfer Value Specialist, demonstrated by a Transfer Value Analysis – so begins our problems.

Many intermediaries have little understanding of DB, yet they are heavily regulated. To get around this, they tailor the information gathering process to meet their own interpretation of requirements.

Administrators have to follow a different process nearly every time they respond to a transfer value request. . . And, that's for every quote, not just transfers proceeding to payment.

We need a common agreement on the information sharing process.

The Pension Review on miss-selling set a precedent - starting out as an eclectic mix of information requests until a standard set of data was agreed by the Securities & Investments Board.

We also need a broad industry-wide acceptance of a common legal minimum to give Transfer Specialists comfort they're fulfilling their Regulatory duty, whilst not overloading the administrator. Adding the scam checks that administrators carry out, it's no wonder they take time!

People are looking to transfer to take advantage of DC Freedoms, but don't make their mind up until quite close to retirement, not understanding that the transfer will take much longer than a straightforward pension set up.

According to one administrator – members are permanently unhappy. We need to manage peoples' expectations better. If dealing with normal retirements, we need to tackle transfers in the retirement wake up letter. If transferring to retire at any other time, we need to pick this up as part of the retirement pack.

The challenge of DB transfers is often the actuary needing to calculate them. Lack of automation/special benefits/high values/funding issues are all reasons why actuaries have to either do the calculation, or check it. Many trustees haven't raised their transfer de-minimus limit, some being as low as £250,000.

DB transfer values are at their highest rate for years and many are in excess of £1m.

These need to be passed to the actuary for checking, but few actuaries have SLAs for their administration support and most are busy with their own issues supporting trustees through the funding minefield.

A transfer can take 10 plus days before it gets back to the administrator and even if the calculation hasn't needed to go to the actuary, sensitive funding issues may mean referral.

Automation can help. Good data means the majority of calculations can be specified by the actuary and automated.

PASA is focusing on how new technology can improve administration, but in the meantime, as trustees begin to see transfer volumes increase by up to 70%, they're revisiting the cost of automation. But to automate, you need good data or it's simply window dressing.

Following scam checks and the member agreeing to the transfer, they have to wait for the money to be in the bank account before payment.

What compliance department will allow an administrator to keep a float of more than £1m in cash, just in case a transfer needs to be paid? Most schemes have a monthly investment/disinvestment cycle, it's not a long wait – but on the end of all the others, for some members it's the final straw.

It may be a perfect storm for transferring occupational scheme members, but we should be working together to make sure the lifeboat reaches shore.

Written by Kim Gubler, Deputy Chair, PASA.