Are you complying with the PASA DB transfer guidance?

04 December 2019

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. 



Key action points for trustees to consider

1. Liaise with administrators to review the current transfer process and ensure compliance with the Guidance

Trustees should engage with their administrators to ensure the Guidance is being adopted and processes are updated to align with the requirements.

2. Are you familiar with the administration steps required to process and settle a transfer?

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.

3. Update transfer communications and templates

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.

Background

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.

What are the aims of the Guidance?

PASA's Guidance says that it has three key aims:

1. Improve the overall member experience through faster, safer transfers

The Transfer process has become more complex and time consuming for a number of reasons including:

  • Volume of transfer requests have more than doubled: this is attributable to the introduction of pension freedoms via the Pension Schemes Act 2015 resulting in a greater public awareness of transfer values;
  • Higher transfer value requests has increased the workloads of administrators who are required to issue the quotations;
  • Pension scams have also increased resulting in additional due diligence checks to be carried out to help protect members' benefits from unscrupulous scammers (whose approaches are becoming more sophisticated and are continually evolving);
  • Waiting for documentation from the member or their adviser or waiting for confirmations from HMRC or a third party.

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.

2. Improve efficiency for administrators

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.

3. Improve communications and transparency in the processing of transfers

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:

  • Keeping members better informed and pro-actively managing expectations reduces the need for chasing and raising enquiries;
  • Clarity around scheme benefits ensures greater understanding and better quality advice;
  • Each communication should add value to the member by keeping them informed of the transfer's progress. Transparency around next steps and associated timeframes and any circumstances which could affect those timescales are all beneficial.

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.

What do trustees and administrators need to do now?

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 request constitutes a request for a statutory guaranteed cash equivalent transfer value;
  • The request is received via the standard business as usual process;
  • The scheme administrator has the benefit of some or full automation to calculate the transfer value; and
  • The transfer value basis and/or scheme discharge paperwork is not currently under review.

The below are non-standard and will therefore be covered in Part 2 of the Guidance which is due out later this year:

  • Cases requiring significant manual intervention;
  • Partial transfers;
  • Overseas transfers (a transfer of a person residing overseas, involving an overseas adviser or an overseas destination scheme);
  • Where, following appropriate due diligence, the case is suspected to be a pension scam;
  • Non-statutory transfers including cases where a transfer requires the specific consent (from the employer/trustee) or requires the exercise of trustee discretion.

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.

What does the Guidance say in relation to standard cases?

The Guidance sets out a step-by-step guide to be followed in relation to:

  • Processes; and
  • Settlement.

A summary of the key steps contained in the Guidance are set out below.

Processes: Standard cases where there is no referral to an actuary

The guidance expects the process to be completed in seven working days.

Step 1: Guaranteed quote requested by member or via adviser

The member contacts the scheme administrator to request a quote.

Step 2: Issue acknowledgement letter to member

The key objectives of the acknowledgement letter are to:

  • Acknowledge the member's request;
  • Introduce information to help the member in making good decisions about whether and how to proceed. Reducing the risk of a member making a poor choice and wasting time. This should include information on pension scams and financial advice considerations including reference to the Pensions Advice Taskforce (PAT) Gold Standard set out by the Personal Finance Society; and
  • Provide the member with a better understanding of the process and early notice of the associated timescales.

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.

Step 3: Produce guaranteed quote

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:

  • Taking all reasonable steps to maximise automation in the calculation routine;
  • Where possible including an early retirement quote for those members over the scheme's minimum retirement age;
  • Whether it is possible to offer members extended guarantee periods beyond the three months.

Step 4: Check the guaranteed quote

All quotes should be checked in line with the administrator's usual practices.

Step 5: Issue guaranteed quote to member

The Guidance talks about maximising the time for members to consider the transfer and so where possible should:

  • Be issued by first class post or by secure electronic means;
  • Include all necessary forms including the section 48 declaration confirming the financial adviser has provided the member with appropriate financial advice;
  • Include a self addressed return envelope where issued by post;
  • Include clear instructions on how to complete the forms and on supplementary information a member is required to submit such as ID.

Processes: Standard cases with a referral to an actuary

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.

Settlement

The guidance expects the settlement process to be completed in nine working days.

Step 1: Check application forms have been completed correctly

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:

  • Trustee discharge;
  • Section 48 declaration (where relevant);
  • Relevant ID where required. Trustees should consider an online ID process to reduce the need and time involved for members to provide paper based ID; and
  • Receiving scheme warranty.

Step 2: Issue acknowledgement letter to member

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.

Step 3: Additional due diligence

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.

Step 4: Payment preparation - cash planning

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.

Step 5: Payment authorisation - checking process

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.

Step 6: Payment made

The payment needs to be sent to the member.

Step 7: Acknowledgement sent to 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.

Is this a big deal?

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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