The Troubles with DB Transfers
Standards and technology could achieve better DB transfer experience.
Our White Paper reveals industry disconnect adding to delays, costs and risks.
DB transfer volumes and processing issues are causing delays for members and increased costs and risks for pension schemes but could be addressed by use of standard documentation/data and existing transfer solutions, the latest White Paper from Origo reveals.
The research, carried out by the industry’s not-for-profit Fintech company among 16 of the industry’s third-party administrators (TPAs) and Employee Benefit Consultants (EBCs)1, identified that companies had seen significant increases in requests for cash equivalent transfer values (CETVs), of up to 135%, and increases in pension transfer volumes of up to 100% – setting historical highs. This trend was expected to continue or increase once pensions dashboards were introduced in 2019.
Due to the silo-like nature of parts of the transfer process, research participants were unable to provide end-to-end transfer times, but the regulatory timeframe, as mapped by The Pensions Regulator (TPR), for a DB transfer is 9 months. Included in this is the need for ceding schemes to carry out a number of mandatory checks, including member ID, due diligence on the receiving scheme and advice checks. These checks inevitably further slow down a process which members expect to be as simple as “transferring money between bank accounts”.
In addition, one of the most commonly reported “frustrations” and barriers to smoother, faster transfers, as cited by TPAs and EBCs, was a “bottleneck” caused by inconsistent and constant data requests from IFAs. This was attributed by respondents to a lack of experience amongst IFAs of dealing with DB transfers, resulting in requests for data deemed “irrelevant” to obtaining a transfer value analysis (TVA) report.
In order to deal with these unprecedented volumes, 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;
• 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.
A better transfer experience could be achieved for all parties by the adoption of industry agreed standards and technology. To remove the disconnect between TPAs/EBCs and IFAs the creation, agreement and maintenance of a standard data set or message/electronic form, for example, could remove the constant toing and froing between parties and speed up the early transfer stages. Due to increased volumes, attempting to meet the three month quote guarantee deadline is becoming even more challenging. Such a standard at this stage of the transfer process would help cut costs, reduce errors and help ensure timely transfer requests. Reducing paperwork from the transfer process would also help to improve transfer times.
The Origo Common Declaration Standard, now managed through the industry’s new Standards and Governance body – Criterion – is currently under review by an industry working group for possible application to DB transfers. An open and freely available Standard, the Common Declarations are already employed by nearly 100 brand names to capture all the data and consent needed by the ceding scheme to process the transfer without the need to seek further discharge from the client. Common Declarations are proven, having underpinned over 2.2 million transfers since 2008, valued in aggregate at over £110 billion.
The use of an automated transfers service, such as Options Transfers, would also help to facilitate communications within a ‘trusted’ transfers community enabling DB transfers to be much more efficient and potentially more secure.
Paul Pettitt, Managing Director of Origo, says: “What our research reveals is an industry under pressure, working in silos, each with different views of their regulatory commitments and counter-party data requirements, and so expectations of what is needed, what can be achieved and by when are very different. This is resulting in increasing frustrations, spiralling administration costs and poor member experience. It is an issue that needs to be tackled sooner rather than later.
“Origo, is urging the industry to recognise the burdens and issues within the DB pension transfer process and the impact it is having on administration costs and poor member experience and for there to be a collaborative industry approach to solve these issues.”
1. 14 of the participants have agreed to be named. They are: Mercer, Aon Hewitt, Capita, Equiniti, JLT, Xafinity, Congruent, Premier, LCP, Spence & Partners, THPA, First Actuarial, Barnett Waddingham, Cartwright.
2. Regulatory guidance for timescales, as set out by The Pensions Regulator for statutory transfers over £30,000, maps out a 9 month end-to-end process. Please see link: http://www.thepensionsregulator.gov.uk/docs/db-dc-transfers-conversions-regulatory-guidance.pdf