The Financial Conduct Authority’s multi-firm review of life insurers’ pension transfers found that firms received nearly 1 million transfer requests over a 12-month period.
In September 2023, the regulator raised concerns about the poor customer service some consumers get from life insurance firms, particularly slow transfer and claim settlement times.
As a result, it launched a review to assess how these firms’ service delivery compares with their stated standards and how it varies across different firms.
Its findings, published on Friday, suggest that firms are “well-intentioned” and seek to ensure consumers receive good outcomes when transferring their pensions.
They also show that ceding schemes made most transfer payments within a suitable time of receiving the request to transfer. More than three quarters of the firms surveyed completed all transfer requests, on average, within 20 days.
Where a transfer required no additional checks, over three quarters of firms completed these transfers within 10 days, with the shortest time being five days. For more complex transfers, where additional steps and checks were carried out, half the firms surveyed took between 41-80 days to complete, with the rest taking between 26 and 160 days.
Financial consequences of delays
While the FCA does not set an expectation for firms on how long a pension transfer should take, it warned that if a transfer is unnecessarily long, it could have financial consequences if the delay affects a customer being able to draw benefits or get favourable annuity rates.
It said a delay can also have an impact on investment opportunities and increase administration costs, potentially reducing the transfer’s value.
Lisa Picardo, chief business officer UK at PensionBee, said government and regulators must remove unnecessary barriers stopping consumers from taking control of their financial futures.
“We believe the solution is clear: Introduce 10-day, electronic pension transfers as standard – already proven possible by leading providers. Reform the scam-prevention rules so that important and effective protections remain but are proportionate and don’t block legitimate transfers and promote clear, jargon-free communication that empowers savers to make confident decisions.
“Ultimately, consumers rightly expect their pensions to be as accessible and responsive as any other aspect of their financial lives. PensionBee welcomes any initiative that forces the industry to raise its game on pension transfer times and customer service.”
Digital platforms
According to the FCA, where both the ceding schemes and receiving schemes use a digital platform to process a transfer request, those transfers usually happen more quickly than transfers made manually through a paper application.
Most firms said they use the Origo Transfer Service to complete transfers and the large majority of these made over 80% of their overall transfers using this platform.
The review also found that once an instruction to transfer had been received by the ceding scheme, an amber flag was applied on fewer than 2% of the transfer requests received.
Jon Greer, head of retirement policy at Quilter, said: “Given previous practices where it was raised merely where the receiving scheme held overseas investments, this is a positive thing and suggests progress is being made.
“However, the FCA did note some outliers which also suggests interpretation across the board is not consistent, and whilst the incidence is low in contract-based pension arrangements, the review did not include trust-based schemes where the practice of raising an amber flag solely for the receiving scheme holding overseas investments is likely significantly more prevalent. This is not an issue that we would say has been fixed per se, and further investigation is definitely required to help ease the friction this causes.”
The FCA said it was also concerned that some consumers may be deciding to transfer based on the prospect of a reward, such as cashback or signing up to a consolidation service and may not consider the full financial implications of their decision.
“Our review showed that firms in our sample shared this view. We recognise the efforts firms already make to flag up to customers the often valuable benefits of their existing scheme,” the FCA said.
Going forward, the regulator said the launch of pensions dashboards may drive higher demand to consolidate pension pots and firms will need to respond accordingly.
“Under the Duty’s consumer understanding outcome, we expect firms to support consumers in making informed decisions. This means they should ensure their communications meet their customers’ information needs. They should test, monitor and adapt communications to support good outcomes,” the FCA concluded.
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