Pension transfers are central to the reforms sweeping through the pension industry. Unless customers can transfer their pensions from one provider to another easily, quickly and cheaply then competition between providers will be stifled and the new pension freedoms will not have the intended liberating effect.
Unless employees who frequently change jobs can keep track of their pensions and, without too much effort, consolidate their savings into a single manageable account then auto-enrolment will create millions of small orphan pension pots to the detriment of the employee and the pension administrator.
In recognition of this, almost every organisation involved in pensions has instigated a transfer initiative. Whilst the DWP automatic transfer policy has been shelved for the time being, HM Treasury is running a pension transfer consultation and both the FCA and tPR have run separate investigations. There are also cross-industry programmes of work for the pension dashboard, open standards, open declarations and common legal agreements.
Although each of these initiatives has a different focus there is wide agreement on the need for a common technical and legal framework. TISA has led much of the work to establish that open pension transfer framework which is built on the foundation of their very successful work on ISA transfers. The framework comprises open technical standards from the UKFMPG (UK Funds Market Practice Group) based on ISO 20022 messages, a common legal agreement from TISA Exchange to define the obligations and liabilities of each party, a common set of service levels and management information, and an open declaration to help secure clear authority from the customer.
This open standard framework allows multiple competing technology vendors to offer interoperable systems. Each segment of the disparate UK pension industry can get the best solution for their needs without imposing it on everyone else. Technology vendors are free to innovate, to provide better, quicker and cheaper systems, and to couple transfer systems with other services. The end customer benefits from a much improved service and lower costs.
Take up of the open pension transfer framework has not been as quick as it was for stock and shares ISAs. This is partly due to the more complex structure of the pension industry with two regulators and a plethora of trade bodies. This makes it harder for joined up solutions to take hold. And it may also reflect the fact that the improvement in ISA transfers was driven by regulation in the form of RDR. But every single cross-industry pension transfer initiative to date has concluded that the open standard framework is the best answer. It only remains to be seen whether the industry can get there quickly enough on its own or whether it too will require a regulatory prompt.