What problems do savers face when transferring their pensions?
If you want to transfer your pension to another company, you could find it quicker to fly to Mars. That’s not an exaggeration – in some instances, it can take six months for your provider to process your request, so it’s hardly surprising that some people simply don’t bother trying to move their money at all.
But it’s a problem that needs addressing sooner rather than later, as the government’s auto-enrolment initiative matures.
While it’s hugely positive that more people are saving for retirement through workplace pensions, this also means that anyone who has changed jobs is likely to have multiple pension pots scattered around the industry, often making it difficult to keep track of savings.
In fact, 60 per cent of people don’t know how to access their old pension pots, according to fintech firm Moneybox. And the risk of pension pots being lost in the ether or forgotten about entirely is only going to increase.
As Pete Hykin, co-founder of another fintech Penfold, explains: “It’s only getting worse now that auto-enrolment means that people are collecting small pots in a shorter space of time, and the nature of work has become more insecure and flexible. We have customers who have multiple pots from various jobs that they can’t merge together, even if they’re all with the same pension provider.”
While legislation states that providers have six months to complete a transfer, Ben Stanway, co-founder of Moneybox, says that this is simply too long for the fast-paced culture we now live in. It’s also far from the near-instant tech experience that customers have come to expect given the popularity of online banking.
“Pension legislation was last updated in 1993, when Meatloaf was number one in the charts and Jurassic Park was the summer blockbuster,” says Stanway. “The rest of the financial services industry has changed entirely during that time, but pensions have been left behind.”
While investment and pension trade associations came together in 2016 to push for faster transfers (this summer, they set out a target of 10 business days for a pension cash transfer, and 15 business days for occupational scheme transfers), many savers still find themselves waiting far longer for their request to be processed.
The (very) long game
PensionBee looked at 51,503 transfers conducted between 2016 and 2019, and found providers taking an average of 20 days to process pension transfer requests, while 12 providers tended to take 20 days or longer on the list of 24 companies.
Mercer came out the worst at 62 days on average. The firm said that it is signed up to the STAR and Origo programmes, and is committed to continuous improvement in its pensions service.
Mercer was followed by Now Pensions at 61 days, and Capita at 45 days.
While PensionBee looked at providers that use both paper and electronic transfers, by comparison, if your provider uses Origo’s online service, the average time it takes is likely to be less, with the average ceding performance at 8.9 days.
According to a report published by Origo last week, Hargreaves Lansdown was the slowest at processing online pension transfer requests in the 12 months to the end of September, at an average of 30.2 days.
Tom McPhail, head of policy at Hargreaves Lansdown, responded: “We believe transparency of performance is important, which is why we agreed to the publication of our data by Origo, where others with poorer numbers do not. We are also pleased that our performance is improving; we’re putting a lot of resources into ensuring we execute all instructions in a timely manner.”
Hargreaves was followed by Yorsipp Limited at 27.6 days, and Liberty Sipp at 23.6 days. Interestingly, there is a large jump between that and the fourth provider on the list, which is government-backed Nest at 13.9 days.
A big challenge for the industry is that processes used by providers will differ – as Origo points out, a specialist Sipp provider might encounter delays to disinvestment proportionately more than a provider with a range of less complex products.
However, it’s not just the time it takes for companies to move the money that’s the problem, because customers frequently find themselves jumping through other hoops to move their money.
City PM asked a number of challenger pension providers what problems they and their customers had encountered when attempting the switching process.
Escape route
Exit fees can be extortionate. Although these charges only occur in four per cent of all pensions, PensionBee chief executive Romi Savova warns that they can deter people from switching when it may be in their best interests to do so.
What’s worse is that a few companies are failing to make it clear that they charge exit fees, with some customers only realising after they have moved their money.
In fact, Stanway says one new Moneybox customer was in the dark about the exit fee until they were charged £1,000 to leave their old provider.
Facing up to the situation
Some providers also have some strange rules for signing off transfers.
For example, there have been instances where companies have asked their customers to visit their offices for face-to-face interviews in order to confirm their wish to transfer.
If your provider is based in Edinburgh and you live in London, this could end up being a costly round-trip, both in terms of time and money.
Passport control
It’s also not that unusual for some firms to request original copies of documents like birth certificates or passports.
Savova points out that this is both expensive and time-consuming, because most people want the security of sending these important documents via recorded delivery and will have to visit a post office to do that.
Paper trail
Stanway tells us that Moneybox received more than 1,000 transfer requests from a particular provider, which asked customers to complete a seven-page questionnaire within 30 days, or the switch to Moneybox would be cancelled.
And despite the rest of the provider’s service being completely digital, the questionnaire was all on paper, asking for details such as the “charges schedule”, investments offered, and the “type” of pension that is receiving the scheme.
On call
Sometimes companies seem to be intent on making the process as painful as possible.
For example, Hykin says that one customer was trying to transfer their pension pot to Penfold, but despite filling out all the paperwork with their existing provider, had heard nothing for a month.
“When we chased the firm, we were asked to schedule a ‘due diligence call’, and the only way to arrange this was to call up. The number went to a voicemail asking to leave the details – and this was just to schedule the actual due diligence call.”
While Hykin’s team scheduled the earliest appointment in three weeks, he says it is still unclear what a due diligence call involves, while that pot is yet to be transferred. “It’s no wonder most people give up.”
Counter-intuitive
It’s up for debate whether pension providers simply haven’t got the right technology and processes in place for transferring these pots, or if some are just so reluctant to lose assets that they are actively trying to nudge customers into giving up.
But ultimately, if companies are making it so hard for people to switch to a better provider or consolidate their pots into one place, and savers therefore lose their pensions, it’s wasting the huge potential of auto-enrolment as a savings initiative.