It’s been 6 months since the catchily named Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 came into force (I’ll refer to this as “The Regs” from now on) and so I thought it would be a good time to review what we’ve learnt and how these changes have impacted everyone involved.
The administration industry appears to have, once again, reacted well to regulatory changes, and trustees and their members should be reassured by the new procedures and how quickly they were implemented.
Learning 1 – 23 days isn’t long enough to implement new procedures
The Regs were published on 8 November and came into force on 30 November. Administrators therefore needed to be up to speed and compliant, including training all staff, updating communications, and changing systems to account for new timescales, in 23 days (16 if you let your teams go home at weekends, which we almost always do).
Here at Broadstone we decided to run with the new draft procedures for transfers requested before 30 November (and therefore not captured under The Regs) to give them a test run before they were required. We were, therefore, in a great position by 30 November, but there remained elements of the process that needed finalising even after this deadline.
Learning 2 – “Catch-all” regulations sometimes cause more trouble
The Government deliberately tried to keep their definitions wide in The Regs to assist those looking to stop suspicious transfers. However, even straightforward transfers are triggering the warning flags if interpreted too narrowly. A good example of this is the presence of an amber flag where the receiving arrangement includes overseas investments. As we know, most pension schemes include overseas investments, even in default funds, and whilst the Regulator’s guidance suggests this was not intended to be used for low-risk investments, it remains (along with high charges and high risk funds) a grey area. Pensions Age reported last month that 39% of the amber flags raised were due to the overseas investment rule. There is a reliance on administrators to use their judgement in these cases, which isn’t helped by these wide definitions, however well intended they were, and clearly there is some over cautiousness going on (understandable if the administrators are ‘on the hook’ if things go wrong later on).
Learning 3 – More work for the admin teams
We are now getting an idea of the additional work, and therefore the resource required, to carry out transfers in line with The Regs whilst still maintaining service levels. Whilst the majority of cases are straightforward, additional checks and communications are required and cases can now take a significant amount of time. Ultimately with any change of this magnitude there will be an impact, either in the service levels achieved or the fees that are charged to ensure the team is resourced at the right level. With administration teams under huge pressure at the moment, the protection of member benefits will come at a cost of one type or another.
Learning 4 – Do it all at the same time please!
Hot on the heels of The Regs came the announcement of the introduction of the Stronger Nudge to pensions guidance from 1 June, the rules for which were published by the FCA on 1 December (now there’s a lead in time I can get behind). At the time of writing we don’t have much experience of members reactions to this but have made the necessary changes to the recently updated procedures and communications just after the ink had dried. We’re all looking forward to what comes next!
Learning 5 – Members are far more understanding than we give them credit for
In May, PASA released their (as always) excellent guidance for administrators, which followed a lengthy consultation with the industry. Entitled Faster, Safer, Better, (which did make me momentarily picture Matt Hancock standing behind a lectern, or even worse, in front of his ‘adviser’) its main objective is to improve the overall member experience through faster, safer transfers at both the quote and settlement stage of the process.
The industry puts an awful lot of its energy into the member’s journey – engagement, education, experience and outcomes, and rightly so. But in my opinion in almost all dealings with members it is all about the first communication. When a member requests a transfer quotation, it is critical that the first document they receive sets out the process, how long we expect it to take, why there are additional steps, and the fact that it’s all done for their protection. If we do this properly (and experience is showing we are) then members will expect additional touch points, requests for additional information where required, and then finally, their benefits. By providing the right communication to members at the right time, Broadstone have avoided any increase in complaints due to the new measures. Which I’m sure we all agree is good news for everyone.