But, while a standardisation of the process has been welcomed, the document has been two years in the making and doesn’t have any impact on the advice process.
Requesting a transfer
Standard ‘or straightforward’ defined benefit transfers have three main components.
Firstly, a quote is requested by a scheme member or their adviser.
If there is no referral to an actuary, the PASA states that the total expected time it should take to issue a cash equivalent transfer value (CETV) is seven working days.
If there is a referral to an actuary, an additional working day should suffice.
The second step sees the CETV, which is valid for 90 days, sent to the scheme member and/or their adviser.
Following a decision to transfer, the settlement process is step three. The PASA recommends that this should take no more than nine working days.
Part 1 of the PASA guidance was published on 8 July 2019, with a second part expected towards the end of 2019 that will look at non-standard, more complicated cases.
Stumbling at step two
The response from industry has been positive, but “what’s missing is the bit in the middle,” Peter Bradshaw, director at Selectapension, told International Adviser.
“That’s the advice part and where the Financial Conduct Authority guidance is still sadly lacking. It’s great that they want to speed things up, but they’re only looking at the beginning and the end of the process.”
Bradshaw highlighted the “log jam” in the middle, where the current, limited supply of advisers is struggling to meet the demand for pension transfers.
“There are around 5,000 advisers who are authorised to do DB transfers and nearly five million people with deferred pensions.
“While it’s a good thing to pressure industry by nailing down the maximum number of working days these processes should take, but it doesn’t address the supply and demand issue in any way.”
Clock is ticking
Aisa International’s Chris Lean believes the limits will help advisers “when it comes to talking about timescales and delivery of advice”.
The chartered financial planner also welcomed the template provided in the guidance outlining what information should be provided on defined benefit CETV requests.
He cautioned, however, that the addition of time pressures could result is rushed decisions.
“CETVs last for 90 days and it could take a few days before the pension member gets it, so the clock is ticking,” he told IA.
“The advice process is quite lengthy now and, very often, the IFA has to go back to the trustees to ask for additional information.”
Lean flagged up re-valuations from the date of leaving, pension increases in retirement, commutation factors, early retirement factors, death benefits, partial transfers as just some of the examples.
“This wastes even more time and can put the member and the adviser under time pressure. A rushed decision can often be a poor one.”
With that in mind, however, “this is a welcome development, assuming that the administrators adopt it”, he added.
Needing additional resource
Royal London’s Steve Webb describes himself as “a fan of standardised advice from DB schemes to advisers so they can offer efficient advice to scheme members”.
“Financial advisers really do need a lot of granular data in order to advise,” Webb told IA. “It is quite rare for schemes to provide all of this first-time round.
“Any thing which makes it more routine for schemes to supply much more information in a standardised format and more comprehensively would be welcome.”
But Webb also flagged up the additional burden the timescales could put on already stretched pension scheme administrators.
“Many DB schemes have been swamped with demand for DB transfers and simply don’t have the infrastructure in place to deal with the demand.
“If the third-party administrator contract didn’t have this built in, then they are trying to cope with a surge in workload with no extra resource. As a result, DB schemes can often be hard for advisers to engage with and there is frustration on both sides.”
Not a finished product
It has taken two years for the first part of the guidance to be published but it may still be a work-in-progress.
“Obviously, any template is likely to be imperfect, [but] it’s good that it’s out there and now can be refined, if necessary,” Webb said.
Aisa International chief executive James Pearcy-Caldwell highlighted one particular section (Appendix 2, section 48) which is “already being called into question and should be tightened up to state clearly that the pension transfer as been advised”.
Rebalancing the process
Now that two parts of the DB pension transfer process have been addressed with the PASA guidance, the ball is firmly in the Financial Conduct Authority’s court when it comes to improving the efficiency of the advice part.
But with rising professional indemnity (PI) insurance and regulatory costs driving people out of the market, the supply of advisers to meet the DB pension transfer demand could mean that scheme members have to wait even longer just to find an IFA who is qualified and has capacity to take on their case.