Providers are taking months to give financial advisers the forecasts they need to offer advice on pension planning and transfers. Moneywise investigates to find out who is at fault and what can be done.
The ability to use the new pension freedoms and transfer money out of final salary pension schemes has given many retirees more choice over their lifestyle in retirement. But some consumers face months of delays while they wait to get the necessary information to make decisions.
Since April 2015, people reaching retirement age have been able to withdraw as much of their defined contribution pension savings as they want (75% of which is subject to marginal income tax). This pension freedom has shaken up the rule book when it comes to what retirees can do with their pension pots.
Independent financial advisers (IFAs) have reported a surge in the number of defined benefit (final salary) scheme members who are trading in their ‘gold-plated’ guaranteed income pensions for cash. People transfer for a mixture of reasons – they may be worried about the future of the scheme and like the idea of using the new pension freedoms, while transfer values to move from a defined benefit (final salary) pension to a defined contribution pension have risen dramatically.
Financial advisers say transfer values for those cashing in their defined benefit plans are typically between £250,000 and £500,000. This is because the yields on government bonds (gilts) – which final salary pensions invest in to underpin the guaranteed income that they provide – have fallen to record lows. Pension schemes, therefore, need to set aside more money today to meet their future promises, so employers will pay more to get people’s guaranteed pensions off their books.
Many people are prepared to ditch their guaranteed retirement incomes for large sums of pension cash that they can then drawdown. It is worth noting that if you want to transfer out of a defined benefit pension and your pot is worth more than £30,000, you must get an IFA to sign this off.
But this increased interest in transferring has had an impact on waiting times for consumers, and IFAs requesting information from pension schemes.
What the IFAs say
The issue first came to Moneywise’s attention when liaising with IFAs on our Money Makeovers for readers. One IFA, Paul Davis of Clear Financial Advice in Billericay Essex, waited nearly 12 weeks between first requesting retirement forecasts or pension projections from one defined benefit pension provider on behalf of a reader and receiving it.
He says delays have “absolutely” escalated following pension freedom as “administrators for defined benefit schemes have never been geared up for this kind of increased workload”.
“This is made even more frustrating when you speak to them, as there is never a sense of urgency or empathy with the situation,” Mr Davis says.
Keith Hanna, a retirement planning manager at Lowes Financial Management in Newcastle, Tyne and Wear, says there was “a slowdown” with defined contribution providers after pension freedoms were introduced. But he says it’s the defined benefit scheme administrators that are struggling now. “Getting information can vary – it can take anywhere between three and eight weeks to get a Cash Equivalent Transfer Value (CETV), and then a further two to four weeks for getting further information if it hasn’t been provided,” he says.
In one case, Mr Hanna was told it would take a minimum of 12 weeks for a CETV to be given.
Martin Dodd, a chartered financial planner at Midland Investment Agency in Wolverhampton, West Midlands, says: “In the defined benefit space, delays are a relatively new issue – the waiting time for information can be two months at least.”
On a more positive note, Jamie Smith-Thompson, managing director at advisory firm Portafina in Rochester, Kent, believes the larger defined benefit administrators are “generally getting back on track” following the pension freedoms.
However, he adds that across both defined benefit and defined contribution schemes, the slowest providers have been taking one to two weeks longer, on average, to provide information in 2017 than they did in 2016.
How information is provided is another sticking point – a lack of a standardised industry approach means schemes can choose how to present information.
Alex Shields, a chartered financial planner at John Lamb in London, says: “Some administrators are very quick and get back to you in a couple of weeks; others take months and often they send a standard pack, which doesn’t include all the information.
“As an example, we have had a case which has been going on since July where the administrator is taking four to six weeks to reply to every question we ask.
“This can affect the advice process as CETVs only last three months.”
And Mr Shields, isn’t alone. Lisa Vaughan, a chartered financial planner at Fogwill & Jones in Sheffield, Yorkshire, comments: “Providers often respond to requests within a reasonable timescale but not with the information requested, so you have to go back time and time again, which is what can cause issues.
“Defined benefit scheme administrators generally take longer to respond. However, in their defence, this is because the information is often more complex and calculations are often required.”
The rules on providing quotes
According to The Pensions Advisory Service (TPAS), pensions law stipulates that consumers are entitled to one CETV quote every 12 months, which schemes have three months to provide.
You’re allowed to request a benefit statement estimating retirement values once every 12 months, although here schemes have just two months to provide information.
These rules apply whether you’re contacting your scheme directly or via an IFA or financial planner.
If schemes miss these targets, TPAS says they should provide the requested information as soon as possible, and that these delays should be reported internally. It’s then up to managers of defined contribution schemes or actuaries, scheme auditors, legal advisers, fund managers or custodians of defined benefit schemes to decide whether the breach is worth reporting to The Pensions Regulator. Persistent breaches could potentially result in penalties.
What the pension schemes say
To get the other side of the story, Moneywise asked some of the UK’s major pension providers and administrators for their views. We’ve picked these firms at random – neither Moneywise nor the IFAs we spoke to for this piece are necessarily accusing them of causing delays.
Pension provider Royal London told us it’s not seen a significant increase in requests from customers or from IFAs of late.
In contrast, a spokesperson for pension provider Aviva says: “The pension freedoms have given savers much more choice and, as a result, our customers and advisers have more questions for us. While at times we’ve seen some pinch points, we have invested heavily in IT and people to support this growth, and we’ll continue to adapt to demand as necessary.”
On the administrator side, Benjamin Roe, a partner at Aon Hewitt, which looks after more than 200 pension schemes, agrees that information requests have gone up since the new pension freedoms. “This has led to an increase in workloads for administrators, both in terms of producing the transfer value quotes for members and also answering questions from IFAs,” he says.
However, he adds: “Most of the issues around time frames comes from interactions with individual IFAs who need to get up to speed on the benefits provided to the member. This can be a time-consuming and repetitive process.”
Julian Mainwood, a partner at administrator Barnett Waddingham, told Moneywise: “We have seen a large upturn in defined benefit transfer requests from individuals and IFAs and, to a lesser extent, defined contribution transfer requests.
“These additional requests have invariably put a squeeze on pension administrators but, by and large, service levels have largely been maintained.”
Mr Mainwood agrees it is IFAs who have been slowing down the process. He believes it’s hard for consumers to find an IFA who can provide advice in a reasonable timescale due to their services being in “such high demand”.
Meanwhile, a spokesperson for administrator Willis Towers Watson comments that over the past 12 months, the volume of transfer requests has almost doubled, compared to those seen in the previous year, which were themselves running at a level double what they were in April 2015. They say that due to this volume, there has been “some” impact on response times.
The Moneywise view: What should consumers do?
If you’re thinking of contacting your pension provider yourself or getting independent financial advice, it’s best to act sooner rather than later and to be prepared for delays.
The process can take a long time, so allow time to sort out any problems that crop up.
FASTEST DEFINED CONTRIBUTION SCHEMES
Canada Life – 1.2 weeks
B&CE Benefit – 1.6 weeks
Hargreaves Lansdown – 1.8 weeks
SLOWEST DEFINED CONTRIBUTION SCHEMES
Equitable Life Assurance Society – 5.5 weeks
Mercer Ltd – 5.4 weeks
Fidelity Pension Management – 4.4 weeks
Note: Figures based on number of weeks to provide information information. Source: Portafina (a financial advice firm), based on 12,337 requests for information made by Portafina on behalf of 6,821 new clients to over 650 different defined contribution and defined benefit pension scheme providers and scheme administrators. To be included, each provider must have fulfilled a minimum of 10 information requests between 1 November 2016 to 31 October 2017.
FASTEST DEFINED BENEFIT SCHEMES
Diageo Pensions – 1.6 weeks
Clerical Medical – 2.1 weeks
Prudential – 2.4 weeks
SLOWEST DEFINED BENEFIT SCHEMES
East Riding of Yorkshire Council – 17.1 weeks
Lancashire Council – 11.1 weeks
West Midlands Pension – 10.3 weeks
Note: Figures based on number of weeks to provide information. Source: Portafina as above.