‘Manual pension transfers are slow, costly and prone to error’

0:11Sonia Rach: Hello and welcome to the FT Advisor podcast. This week we're diving into ways to improve pension transfers. FT Advisor is championing a cleanup of rubbish processes and our campaign, Tidy Up Transfers, is delving into where we are as an industry and how we can improve. I'm Sonia Raj, Deputy News Editor at FT Advisor, and joining me today are Sue Whittington, Chief Operating Officer for Smart Pension, and Angela Starrell, Chief Operating Officer for People's Pension. Hi both. Thanks for joining me today. Thanks for having us. Angela, perhaps I'll start with you. We all know pension transfers have been a longstanding frustration.

0:48Sonia Rach: So why do you think the industry has taken so long to solve this problem? So pension transfers or pensions are a long-term investment. They have strong protections because scams aren't uncommon and if they happen, they're high impact. You have multiple scheme rules and scheme types with different protected benefits. For example, you have not a fully universal switching structure. Data matching isn't standardized yet. That doesn't mean that the pension providers should not work very, very hard to make transfers smoother. And faster once a member has made an informed decision and once we've assured ourselves that there is a pension scam risk.

1:30But I think that's why transfers are tricky to crack.

1:35Sonia Rach: And Sue, would you sort of agree with that? What do you think is actually happening behind the scenes when a transfer is going on? Yeah, no, I think there's all sorts going behind the scenes in terms of how the operational processes might be set up, the systems that support those processes, how we engage with the, you know, with the customer. Yeah. And now's probably a good time to sort of come into Pathfinder and how it has been described as sort of this industry first collaboration. So what prompted some of the Master Trust to come together now? Why now, I guess? Yeah, I mean, if I start from Smart Pensions perspective, we've been looking into open standards for a little while now.

2:18And we've been working with our transfer technology partner to try and automate our processes and make improvements you know make communication with customers more transparent so they you know they stay more engaged end to end to end so I suppose we've just got back to a point quite naturally where you know looking at open standards and a more modern way of facilitating a pension has come about and I think you know similar thing with other master trusts similar conversation and And that transfer technology partner has brought us together, really, suggesting that we start an initiative and we test open standards as an alternative, more modern way of facilitating the transfer.

3:03And I think, you know, we're a bunch of like-minded master trusts and, you know, very much wants to, you know, challenge not only the timescale, but actually enhance the customer experience and the transfer as well. I think that's really important. Yeah.

3:17Sonia Rach: And obviously, you've mentioned the term open standards quite a bit there. So what do you think or how can you explain what that actually means in practice for advisors and for consumers? Yeah, I mean, I guess in principle, open standards using the ISO 20022 data messaging across the Swift network. So it's not experimental technology. Swift handles millions of messages globally on a daily basis, underpins, transfers, other financial trading. And therefore also gives us that foundation. We're not starting from scratch, you know, so we're not having to sell a concept to advisors or other providers or the, you know, the pension saver either.

4:07It's something that is in daily use, gives us a bit of a head start.

4:12Sonia Rach: Yeah. And the first live transfer using these standards took place in April, I believe. Yeah, that's right. So can either of you walk us through what happened and why it matters? It matters because it's an early proof point that demonstrates that that avenue can work as an alternative mechanism for scalable, efficient, secure transfers. This was only a first trial. So now we're really looking forward to a follow pilot that then helps us also to work on further streamlining the process. But the technology works. and many transfers now still rely on these manual processes that are in place so just how much of today's system do you think still works that way given the whole landscape altogether yeah i think from my point of view too too many still manually um and i think you know that's that's a big piece of what's wrong with with today's um transfers um yeah manual processing is slow it's costly it's it's prone to error but I think also if we look across to the electronic alternative you know at the moment that's a very closed ecosystem as well and it's missing that sort of interoperability with other systems and the independence around the governance framework as well which is something that Pathfinder is very much looking to to build into this.

5:37One thing that I'm really excited about in the context of Pathfinder and the model there is the introduction of a pre-transfer validation step because if that is implemented correctly, so you asked about transfers being a pain point and what it might be. A lot of that comes sometimes because early on in the process, you have data mismatches or you have the expected fund value is very different from the actual fund value. So you then go back to the saver and say, are you still sure you want to transfer this? or protective benefits that I mentioned earlier are unclear whether or not they're administered by both providers.

6:16So if you catch that early on before a transfer is actually requested, then everything on the back of it goes so much more smoothly. So one of the things I'm absolutely most excited about is the pre-validation. Yeah, I think that's the same for me. That is the key difference. because so many transfers and we were talking about this earlier so many transfers go stale because at the point in time a member is aware there's been some sort of data mismatch you know rejection of the transfer they've moved on in life yeah you know they're not thinking about it anymore and that you know they spent all that time up front making an informed decision make the submission of the transfer for it then you know not to not not to actually complete yeah or

7:00Sonia Rach: materialize because and it is that sort of concern that is why ft advisor started the campaign you know because there are so many people that start the journey and end up sort of falling off because it takes too long it's too tedious so you know it's really positive to see something like this that will hopefully help so given what you've just said would you say that is the kind of one tangible difference that advisors should notice with kind of pathfinder or are we talking about transfers may be taking days instead of weeks you know what what is the the main thing that you anticipate coming out of this i think it's a balance um so we've actually you know absolutely set out the ambition to improve time scales because we know at the moment they're very wide ranging across the industry but it's about also as i said earlier enhancing that experience so yeah i think the biggest difference will be that point around that upfront validation whilst the member is still engaged and that should be you know for me the thing that people appreciate and notice primarily um and appreciate that it's it's quicker um but but not to just be let on speed yeah i think that's a really important point actually um we we it is tempting to just obsess about speed um and that's not what it's all about it's about member outcomes and there are three things that are really important.

8:24One is that a transfer must be the result of a well-informed decision by the member. A transfer must be safe. And then thirdly, it must be efficient and smooth and streamlined. But we cannot forget about these first two points. And we see real gaps in informed decision-making. Right now, as a saver to compare schemes, you'd have to know about cost and charges, investment performance service quality benefits and it's really hard for savers to to compare that yeah we know from research the vast majority of members who do transfer have no idea about the cost and charges of the receiving scheme and that indicates a real gap here yeah definitely and it

9:08Sonia Rach: is a knowledge gap isn't it because there's no kind of information there to help them sort of through this process so it is yeah it's confusing isn't it you know when you think about all the things that are coming at them you've mentioned you know comparing a charges am i better here or there you know we've got aggressive marketing campaigns coming at us from you know time you get on the tube we'll see the best go past um if you absolutely if you if you add incentives for example on to on in in the equation here yeah that introduces an entirely different likelihood to switch regardless of the suitability of the other scheme.

9:46And that can mean that, you know, 100 pounds cash back here or 200 pounds cash back here and here now is going to lead, if I move to the wrong scheme, to thousands and thousands of pounds less retirement income when it comes. So finding ways to, well, incentives should be banned to start off with. But then to address the broader issue of information and making sure that we get to a more comparable state, the FCA has just consulted on adapting to the changing pension market with a proposal to provide comparative information to savers before they make a decision. And then to separate that from the execution, which then, as we said, has to be as quickly as possible.

10:35and both our groups are attending workshops to try to find ways and that is supported by Pensions UK to pilot that and find practical ways to do that.

10:48Sonia Rach: I think that's really interesting and it does kind of resonate with the added layer of complexity that is there when someone is trying to do a pension transfer and the hindrance that is there when you're trying to make that actual change when there's so many other things in place. I think when we come back to advisors, one issue that they face or they often mention is this lack of visibility once a pension transfer has been submitted or sort of began. Do you think the open standards will help with that at all or have any impact on that? I think it can definitely have an impact and one of the aspirations is around that transparency from the beginning to the end and keeping that member engaged as we've talked about.

11:35But I also think there's emphasis on the providers to look at their processes operationally and where can we put, especially now there's so many digital services and we've all got an app and it's pension in our pocket type of approach. So there really is becoming no excuse for not being able to signpost the progress of transfers. And that's the advantage we're getting from moving from the few remaining paper processes into this automated space as well. Well, I also think that if we're thinking about open standards, standardization per se is going to help automation, it's going to help digitization, it's going to help reporting on the back of it and visibility.

12:22So I'd like to hope that any such avenue is going to help the industry improve in that way.

12:31Sonia Rach: and pathfinder obviously comes just as we are preparing for pensions dashboards and the small parts reforms that are coming into place so how much extra pressure will those developments put on transfer systems yeah i think for me that's the other piece that we haven't spoken about in terms of the the purpose of pathfinder and that's about operational resilience and using the opportunity now to improve those those processes so that we can scale you know so we know that um you know dashboard is is coming that's a key milestone for pathfinder uh in autumn of of next year and whilst it might not cause us a spike initially as it's something new and people are getting used to it's only going to take you know trusted consumer voices to to promote that and people will be interested and have a look and it will provoke or transfer and that's that's where you know that extra communication up front helping people make that decision you know making comparison also becomes really crucial before then starting a streamlined more transparent process beyond beyond that point yeah i think once the pension dashboard is live um you you know savers will absolutely be motivated to to um to possibly consolidate their their pension pots but you're right to which degree we don't know.

13:53We can't really project that very well but by and large that would be a development that we'd welcome generally because we also know that having multiple smaller pots isn't necessarily giving the saver the best outcome. No, yeah. And then for small pots consolidation we have 13 million deferred small pots right now that's projected to be anywhere between 18 and 27 millions in 2030. So there will be absolutely pressure on the transfer system that you need to get on the front foot for.

14:30Sonia Rach: Yeah, because the dashboard is inevitably going to change a lot of people's lives. It's a big wake up. It's going to be all transparent for even people that perhaps don't understand fully what's going on with their pension. It will just make it much easier and it will inevitably put more pressure on people and firms to sort of change the process that's that's there and make it hopefully better so obviously when it came to sort of putting together Pathfinder did you find getting together different master trusts you know to work together easier or harder than you expected probably as I was was expecting because we do interact yeah day to day so it wasn't sort of bringing a bunch of strangers together i think it's fair to say you know we're like-minded yeah um a like-minded bunch so uh got off the ground quite quickly i think to to be to be fair and now it's about you know growing that momentum taking the pilot to the next stage let's you know put some more more testing through and starting to then question the layer of governance that sits around that open standards piece and can we grow more independence in that framework so we're all following some common principles rather than in you know those being open to um you know different interpretation and again that's another way of soothing that uh or smoothing that transfer flow through yeah that ties me on to sort of one of my questions which was around how whether you're inviting sort of more people to join and if so what would success sort of look like in two years time what would you what would you kind of want it to be yeah i mean i think for for me we're definitely inviting others in i think we started as four and now we're eight so you know it's already uh already growing you know this is a of a real interest to to many and i think the next steps for for me really is concluding the the pilot um and in terms of you know just getting that wealth of insight that we don't have today a lot of learning through through this phase which will inform the future and i think as we start to share that um you know those lessons that we're we're learning we and we are inviting other master trusts to join now but hopefully that will attract more and importantly the insurers as well sit providers as well um you know because we really want to we have to go industry-wide if we really want that true adoption you know across the across the market yeah and you know lastly what would you say is the biggest obstacle to making this work currently in the whole pensions industry?

17:16I think there's an enormous amount of change happening right now. The pension industry is as dynamic as it's never been, and I don't think it's going to stop. So this happens in the context of many, many other changes. That's not a blocker, But it just means that we're moving this along with real focus and pace alongside all the other things. Yeah, that's very true. And I think as we navigate our path through, I think we will try and dovetail in with some of those other working parties to a greater extent. and you know personally it would be a success if Pathfinder folded into one of those bigger entities and you know objectives and purposes combined.

18:09Yeah there is a lot to do but with so much overlap as well so we're really alive to that and dovetailing into those other you know relevant transfer initiatives.

18:21Sonia Rach: Yeah I mean it's really positive and you know if it helps solve even a small aspect of the pensions landscape, then I think it's a win, isn't it? So yeah, it's been really interesting talking to you both. But unfortunately, that is all we've got time for today. It will be interesting to also see where Pathfinder takes us and what has been such a long frustration for so many people. It will hopefully be a kind of the silver lining in all of this. So yeah, most importantly for advisors. so of course thank you to those of you who are listening join us next week as we discuss another hot topic in the financial services industry