"If advisers alert clients about the possibility for delays to crop up before beginning the transfer process, for example, they are less likely to feel misled later down the line."
However, sometimes, despite the best efforts of savers and advisers alike, time delays can cause difficulties to the growth of pension funds. Certainly, this can be the case when ceding providers – pension scheme members’ existing providers – default to lengthy waiting times when releasing the funds of clients, who wish to switch to another provider.
Beyond just an inconvenience, these delays can be extremely costly – according to research by NextWealth and the Personal Finance Society, such delays can cost IFAs an estimated £1,543 per new client on average, as well as impeding the growth of an individual’s pension funds. And although these issues have long been bemoaned by advisers, still these delays persist, often with little explanation as to why they occur.
The crux of the issue
Ordinarily, issues begin when an adviser sends out a letter of authorisation to the ceding provider – funds are removed from any investments that the client has with their existing scheme, meaning that the funds are essentially left up in the air until they are transferred to the new provider.
Of course, some delays are inevitable while the necessary security and administrative procedures take place, ensuring clients do not allocate funds to a fraudulent scheme. Generally, it is expected that funds will be released within 28 days of the provider receiving the letter; however, it is not unusual for clients to be subjected to longer waiting times. In particularly extreme cases, My Pension Expert has seen ceding providers take an additional 85 days to release the funds.
Throughout this period, while clients might not be ‘losing money’ in a literal sense, they will face the prospect of losing out on potential gains, should the markets move throughout this period. As noted above, time is precious when building up one’s pension pot. Indeed, My Pension Expert has seen cases where individuals have lost out on almost £900 due to lengthy delays.
A lack of clarity
The main issue here is that there is little advisers can do to help, or hurry the process along, other than chasing the ceding provider and keeping a log of these interactions. Naturally, this can be of some concern to the client.
In such cases, if a client feels that they have been unfairly subjected to long delays, or if they have lost money as a result of lengthy transfer processes, advisers should make their clients aware that they can make a claim, as recommended by the Pension Advisory Service. That said, clients may experience even further delays still while they await a ruling regarding compensation ¬– and worse yet, this process is not always guaranteed to be successful.
Undermining trust within the industry
When all is said and done, the lack of transparency as to why ceding provider delays may occur are an impediment to trust between advisers and their clients – a relationship that is, in many ways, already a fractious one.
Although much work has been done on behalf of advisers, the Financial Conduct Authority (FCA) and various other independent bodies to ensure individuals are engaging more actively with their pension plans, these delays only complicate matters further. According to a recent survey from My Pension Expert, of the 2,000 UK adults surveyed, the majority (56%) of respondents said that they do not trust advisers, and this might make individuals unwilling to seek financial advice even when they would benefit from it.
For example, if a potential client is wary that they may be subjected to lengthy delays, and even the potential to lose out on gains to their pension pot, they may be unwilling to shop around for a more appropriate provider.
What can be done?
Clearly, a change is in order. Up until now at least, little has been done to put a stop to unnecessarily lengthy ceding provider delays. As such, it will take a collective effort to turn things around.
While advisers are at the mercy of ceding providers for much of the process, IFAs would do well to keep the client informed every step of the way, and manage their expectations where necessary. Doing so ought to prevent there being any nasty surprises.
If advisers alert clients about the possibility for delays to crop up before beginning the transfer process, for example, they are less likely to feel misled later down the line. Likewise, keeping a running log of any correspondence could help to support any client claims, should they decide to pursue this course of action.
Likewise, the FCA must continue to campaign for greater transparency in the retirement finance industry. It needs to work with other regulatory bodies, like the Pension Regulator and the Pension Advisory Service, to develop new guidelines for best practice so that ceding providers can be held to account. Such documents should provide in-depth guidance and industry standards for ceding providers to abide by, as well as the actions that advisers can take to support their clients when these are not met.
While there is still a long way to go to curb unnecessary ceding provider delays and make the transfer process a more seamless one, I am confident that with consistent effort and collaboration, that this can be a reality.