FCA proposals that would require firms to gather information from a person’s old scheme and present it to them before transferring risk causing further transfer backlogs and undermining consumer choice. The plans also only cover FCA-regulated pension providers, meaning workplace pension schemes are excluded, and are unworkable in their current form. Rather than gumming up pension transfers, AJ Bell has urged the regulator to focus on improving engagement with annual benefit statements and using the Pensions Dashboard, when available, to present easily comparable information to investors
Rachel Vahey, head of public policy AJ Bell, comments: “Too many people are currently suffering long delays in pension transfers. There are a myriad of reasons why – from antiquated systems in some workplace pensions, to poorly drawn up regulations that should stop scams but often frustrate transfers, and regulation that still gives some workplace pension schemes a staggering six-month window to complete transfers.
“Regulatory and industry focus has rightly been fixed on improving transfer processes in recent years, helping more people make the most of their retirement savings and, where appropriate, consolidate pensions so they are more straightforward to manage. But the FCA’s recent proposals risk making the situation worse, by lengthening the time to complete transfers and ramping up the frustration caused to pension savers. Given Which?’s research found one-in-ten people already give up on transferring due to the difficulties involved, lumping on further delays will only add to the existing problems with the system.
“Better solutions exist that do not gum up the transfer process. AJ Bell believes the FCA, Department for Work and Pensions (DWP) and The Pensions Regulator (TPR) should work together on developing alternative solutions to ensure pension savers with valuable guarantees and protections fully understand their benefits and the risks of losing them through transfers. This could be in the form of regular communication, such as including this in the annual benefit statement, or in the longer term as part of the information held on Pensions Dashboards.
“The good news is that the FCA has indicated they are still listening to industry concerns. By changing these proposals, the aim must be to build a solution that makes sure more people get the information they need at the right time to consider transfers.”
What are the FCA’s proposals on transfers?
The FCA wants to support non-advised consumers who are considering pension transfers or consolidating defined contribution pensions, by making sure they have the information to make informed decisions. It is concerned these consumers are unknowingly giving up valuable benefits, for example guaranteed investment returns, loyalty bonuses, protected pension ages, or transferring to schemes offering fewer decumulation options or incurring higher charges.
Under the proposals, consumers transferring pensions will be asked if they want a comparison between their current and new schemes. Unless they opt out, they must consent for the new scheme to request information from their existing one. The existing scheme has ten days to provide the details, and the new scheme must deliver the comparison to the consumer within three days.
These proposals could therefore add a lengthy delay to pension transfers. However, very few pensions include the benefits and guarantees that the FCA are worried consumers will lose.
Proposals would not apply to the whole pension market
These proposals would only apply to FCA-regulated schemes, so exclude master trusts and other occupational pension schemes. These types of pension schemes could choose to give the information to any FCA-regulated scheme requesting it – for example a SIPP – or they could simply ignore the request altogether.
Are there alternative solutions?
AJ Bell believes the FCA, DWP and TPR should work together on developing alternative solutions to ensure pension savers with valuable guarantees and protections fully understand their benefits and the risks of losing them through transfers. This could be through regular communication, such as including this in the annual benefit statement, or in the longer term as part of the information held on Pensions Dashboards.
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