Are pension transfer delays (and complaints about them) here to stay?
In its 2016/17 annual report, the Pensions Ombudsman (PO) noted that there had been an increase in the number of complaints about pension transfers. In fact, complaints about transfers were the second most popular form of complaint, making up 10.5% of all new investigations opened by the PO during the 2016/17 financial year. This figure doesn’t include complaints about transfers relating to pensions liberation either, which received their own 5th place ranking in the PO’s top ten.
Transfers are a particular concern following the freedom and choice reforms in April 2015, with HMRC reporting that over £12 billion of benefits have been accessed in this way. It is clear that the PO is prepared to take a hard line with pension providers and administrators when it feels that action could have been taken more promptly, even when the respective parties have acted within legal deadlines. Advances in technology have raised expectations that everything can be done faster – and in some cases this is true. The regulatory framework, however, needs to keep pace with the underlying legislation. Recognising this fact, the Financial Conduct Authority is in the process of consulting on new rules for advising on pension transfers.
So, why do transfers generate so many complaints to the PO’s office?
Many transfer complaints relate to undue delay on the part of trustees and administrators, causing consequent perceived and/or actual loss to a member. On the whole, the PO’s office is consistent in the way in which it handles complaints arising from transfer delays.
If there is a perceived loss only, the PO is quick to point this out, although it may still make an award for inconvenience and distress. For example, where a delay meant that an overseas plan, to which a transfer had been requested, was no longer on HMRC’s list of recognised overseas pension schemes, the PO made clear that the member had suffered no loss by the administrator’s refusal to finalise the transfer – deferred benefits (of the same value) would remain within the plan and would still be payable at retirement.
Contrast this with the situation where there is an actual loss to a member. A delay does not have to be lengthy (or outside of the statutory time limits) to warrant a complaint, or to merit an adverse PO determination.
In the recent case of Mrs R, which was reported in June 2017, the Deputy Ombudsman found that there had been a delay of 15 days on the part of the transferring plan and a delay of 13 days on the part of the receiving plan, all of which had meant that Mrs R’s funds were disinvested for longer than was necessary and she had suffered a loss. The Deputy Ombudsman ordered the two pension providers to compensate Mrs R for the loss on a 50/50 basis. This is comparable with the decision reached in the case of Mr Y in December 2016. The circumstances were similar, but in that case the two providers were ordered to compensate Mr Y for loss in the same proportion as the number of days’ loss for which each provider was responsible.
In its annual report, the PO highlights the case of (another) Mrs R. She chose to opt out of her DB scheme in order to transfer benefits to a DC arrangement and take advantage of the new pension flexibilities. Mrs R had received a cash equivalent transfer value (CETV), guaranteed for three months, but for various reasons the transfer was not completed within the guarantee period. Mrs R applied for a further CETV. In the interim, however, the trustees had changed the basis for calculating CETVs. The new transfer value was £91,000 less than the original CETV. When Mrs R made a complaint to the PO’s office, the adjudicator identified three areas where the administrators had delayed, contributing to the transfer not being completed within the original timeframe. Following this intervention by the adjudicator, the trustees of the plan agreed to make an additional payment of £91,000 to Mrs R’s new pension provider and to pay £1,000 compensation to her for distress and inconvenience.
Pension transfers have exceeded the expectations of many in the industry since the introduction of pension flexibilities. Some administrators and providers will be experiencing delays, and possibly backlogs, in their processing capabilities because of this. This might be a long term issue, meaning that better resourcing is required, or it might be a temporary glitch. Either way, managing member expectations might head off some complaints. Of course, administrators are not the only cogs in the transfer wheel. As mentioned above, the Financial Conduct Authority is currently consulting on new pension transfer advice rules for IFAs, with the aim of making the provision of providing advice on a transfer from a DB plan more appropriate to today’s transfer environment. This should mean that IFAs are better equipped to input into the transfer exercise in a timely manner, thus speeding up the overall process.
The Association of British Insurers, in conjunction with other industry bodies, is also working to drive up standards and improve timescales. When pension dashboards take off, there will also be higher expectations of real time transfer facilities on the part of members.
In the meantime, where unnecessary delays occur trustees, administrators and providers would be advised to consider their own transfer processes. Are they still fit for purpose or do timescales need to be assessed and tightened where possible? Trustees should also check their administration agreements to check their recovery rights, if their administrators are at fault in delaying transfers.