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What's Holding Up Pension Transfers?

22 June 2016

The Government has identified transfer times as a potential barrier preventing movement

The Government has identified transfer times as a potential barrier preventing scheme members from switching their pensions to take advantage of the new pension freedoms. As a result of an industry consultation process, the Government is now looking to introduce new guidance and regulations to ensure that transfers are processed promptly.

But why do pension transfers take so long anyway?

Pension scheme members have long had the right to transfer their pension pots between schemes, and administrators have to handle the resulting transfer values. However in the last 12 months or so, a number of new regulations and changes to procedures have been introduced which have resulted in additional information being required in order to process these transfers. This in turn has led to transfers taking longer to process.

Financial advice

The provision of financial advice, whilst important, can add additional time to the process. Members looking to transfer “safeguarded benefits” with a value greater than £30,000 to secure flexible benefits must have received appropriate independent advice.

Trustees are not responsible for checking what advice was given before such a transfer can take place, but the administrator must still ensure:

  • that the member has received advice;
  • that the advice given complies with the regulations; and
  • that the adviser has the correct authorisations. 

Delays are often experienced because the regulations require that the trustees confirm that the member has received appropriate advice. An advice statement addressed to the member but provided by the financial adviser does not meet the regulatory requirements – the administrators will actually need to contact the member to confirm that they have received the appropriate advice.

There is no standardised advice statement, instead Schemes receive a variety of advice statements which need to be checked to ensure compliance with the regulations. Any statements that are not compliant will need to be rejected and a compliant statement obtained.

Additionally, the person providing the advice must be correctly authorised, and this needs to be checked on the FCA website.

Qualifying Recognised Overseas Pension Schemes (QROPS)

In July 2015 HMRC produced a list of Registered Overseas Pension Schemes, with the proviso that they “can’t guarantee these are Recognised Overseas Pension Schemes (ROPS) or that any transfers to them will be free of UK tax”.

As a result, some trustees have introduced additional checks to their due diligence, not only requiring that schemes appear on the ROPS list but also requiring a statement from the receiving arrangement about their QROPS status. While the additional checks are not usually onerous, they do increase the time taken to process the transfer.

Pension Scams

Trustees have introduced more checks and now require further information to try to ensure that transfers are not paid out to fraudulent arrangements. While the recent court case of Hughes v Royal London provided clarification for trustees on when a transfer could be refused, it is unlikely to reduce the checks that they require administrators to conduct. This is because trustees still have a duty to carry out appropriate due diligence checks and to communicate any concerns identified to the member who has requested the transfer.

The future

The Government consulted with industry over barriers to transfers, and respondents to this suggested the transfer process could be improved by streamlining the due diligence process, greater standardisation and establishing a list of trusted pension providers.

Instead the Government opted to introduce new regulatory guidance to ensure prompt processing of transfers and new legislative reporting requirements for trust-based schemes.

Many in the industry feel that this was a missed opportunity by the Government, and unfortunately does not address the issue in a helpful way. Unless the above issues are addressed it is unlikely that pension transfer times will improve in the near future.

A version of this article first appeared in the PMI Newsletter, May 2016

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