Jason Coates
Partner
Article
15
The Pensions Administration Standards Association (PASA), the independent body dedicated to driving up standards in pensions administration, issued the "Guide to Good Practice" (DB Transfers) in July 2019.
The Guidance seeks to create a framework that achieves the right balance between member protection and an individual's statutory right to take their pension in a different shape or form, via a flexible arrangement. It sets out template transfer documents with a view to standardise transfer requests to drive efficiency in the process.
Whilst the Guidance does not have the force of law, it does reflect best practice and sets out a sensible step by step process for trustees and their administrators dealing with transfer requests. Trustees should engage with their administration teams to ensure the Guidance is being adopted and that procedures and processes are being updated to accord with it.
Trustees should engage with their administrators to ensure the Guidance is being adopted and processes are updated to align with the requirements.
The Guidance sets out step-by-step actions which should be taken by administrators when processing and settling a transfer request. Trustees should be familiar with these steps so that they can engage with the administrators to understand how this is being implemented in practice.
The Guidance includes various templates including an example quotation letter, settlement forms checklist and transfer template. Trustees should ask their administrators to confirm whether they have adopted the templates as set out in the Guidance.
Created by PASA's DB Transfers Working Group, the "Guide to Good Practice" was issued in July 2019 and seeks to create a framework which achieves the right balance between member protection and an individual's statutory right to take their pension in a different shape or form. As part of drafting the Guidance, the PASA was part of a working group lead jointly by the Financial Conduct Authority (FCA) and the Pensions Regulator (TPR) to create a "transfer template" to improve the quality of scheme and member information available on transfer cases.
The Guidance sets out to create faster, well communicated, efficient and cost-effective strategies which scheme administrators and the industry as a whole can execute. Given the time it can take to process defined benefit (DB) transfers, up to months in some cases for a number of reasons, this can damage the relationship between trustees and scheme members. This in turn can leave members vulnerable to being exploited by scammers who are more than happy to portray an image of trustees seeking to hold on to money belonging to the member.
The Guidance issued in July is the first of a two part series. This Guidance relates to "standard or straight forward cases", whilst Part 2 will cover "non-standard" or complex cases. We expect that Part 2 will be published towards the end of 2019.
While the Guidance is voluntary (so a party following it cannot be guaranteed not to have a claim initiated against it by a disgruntled member) the PASA anticipates that the Pensions Ombudsman will reference it when reviewing complaint cases as a source of what good industry practice looks like.
PASA's Guidance says that it has three key aims:
The Transfer process has become more complex and time consuming for a number of reasons including:
Included in the Guidance are maximum acceptable timescales for processing transfers. It promotes the principle of administrators taking a lead on the end to end member experience. Highlighting where third parties cause unnecessary delays and collaborating to improve transaction speed. It says that speedier production of settlement paperwork reduces the risk of a transfer quote exceeding the guarantee period and avoids the need for a recalculation.
The Guidance expects that using standard forms and templates with clear instructions will result in members and advisers receiving the required information promptly. This will result in an automation process with the aim of improved efficiency, saving time and resources. The intention is to avoid repetitive requests for further information.
Clear and efficient communication is key. This is true across the entire pensions spectrum and is not a new concept for trustees and administrators. However, the Guidance brings this within the remit of the transfer process and makes the following observations:
Many trustees and administrators already provide a good level of detail in their communications. This Guidance means that trustees should carry out a review of their communications and check that they are in line with the PASA's objectives throughout the process.
Trustees and administrators should check each stage of the transfer process to ensure that it complies with Part 1 of the Guidance.
Part 1 of the Guidance refers to what is called "standard" cases.
A case is "standard" if it meets the following criteria:
The below are non-standard and will therefore be covered in Part 2 of the Guidance which is due out later this year:
As the non-standard cases are the more difficult for trustees and administrators to manage in practice, we are anticipating that Part 2 of the Guidance will be where the most impact can be made to drive efficiencies in the process. However, having a clear template for the standard process is a helpful first step in the process.
The Guidance sets out a step-by-step guide to be followed in relation to:
A summary of the key steps contained in the Guidance are set out below.
The guidance expects the process to be completed in seven working days.
The member contacts the scheme administrator to request a quote.
The key objectives of the acknowledgement letter are to:
Administrators should consider using calendar days rather than working days and should use them consistently across all communications.
The Guidance helpfully includes an example acknowledgement letter.
The transfer value quotation and information should follow the "Transfer Template" as set out in the Guidance.
If data issues are discovered or a quote cannot be calculated accurately, a holding letter should be issued to the member (and/or financial adviser) explaining the delay.
Trustees should consider:
All quotes should be checked in line with the administrator's usual practices.
The Guidance talks about maximising the time for members to consider the transfer and so where possible should:
The process is similar to that as set out above apart from that if a quote needs to be passed onto the scheme actuary, this should be done promptly (i.e. no later than the day of acknowledgement).
The scheme actuary should where possible follow the service levels agreed with the scheme administrators for calculating quotes.
The Guidance expects the process to take eight working days to complete all of the required steps.
The guidance expects the settlement process to be completed in nine working days.
The aim is to get the forms checked as soon as possible to ensure that any errors in forms are spotted in good time within the timescales.
The standard forms should include:
Once forms have been checked an acknowledgement letter should be sent to the member on the same day. The acknowledgement letter should look to set expectations of the next steps and timeframes.
The due diligence requirements are set out in the Pension Scams Industry Group (PSIG) Code of Good Practice which also sets out next steps trustees can take if a pensions scam is suspected.
The Guidance recognises that different administrators use different processes. Importantly, trustees need to ensure that there is sufficient money in the scheme bank account to be able to pay out the transfer value when the checking and due diligence processes are complete.
The transfer value needs to be checked before it is paid. There will often be different levels of authorisation depending on the amount of the authorisation. Sufficient time should be built into the timetable to enable the appropriate authorisation to be obtained.
The payment needs to be sent to the member.
An acknowledgement letter needs to be sent to the member informing them of the date the payment was made and when it is expected to be received by the receiving scheme.
The Guidance helpfully includes an example settlement forms checklist which administrators can go through in order to determine how the settlement process will work in practice.
This Guidance relates to standard cases only and so does not touch upon the complex areas trustees and administrators may be grappling with in practice. However, the Guidance does have an important part to play: it provides the industry with a framework to help deliver efficient and well-communicated practices when processing transfer requests. This can only be a good thing.
It is important to note that whilst the Guidance is voluntary, it is anticipated that the Pensions Ombudsman will reference it when reviewing complaint cases, as a source of what good industry practice looks like. So compliance with the Guidance does matter.
Trustees should be working with their administrators to ensure that the Guidance is being adopted. This will form a good foundation from which trustees can look to implement changes which come through under Part 2 of the Guidance where we may see more substantive changes.
Part 2 of the Guidance is expected later this year, so trustees can expect to consider further changes for the New Year.
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