Andrew Megson, Executive Chairman of My Pension Expert , explains what ceding provider delays mean for pension planners and how they can protect their money by understanding their customer rights
Planning for retirement can be full of complexities, but usually prospective retirees have time on their side. Generally speaking, the longer individuals contribute to their pension pot, the larger it will grow – meaning that they should have a healthy sum of funds to see them through retirement when they decide to take the leap.
That said, there are some situations in which time can work against pension planners, particularly when individuals wish to switch providers. There is one prime example: when ceding providers (a saver’s existing pension provider) take months to release a client’s funds, leaving their investments in ‘limbo’ as the transfer process drags on.
Crucially, this should not deter savers from shopping around for better deals, or more appropriate providers – especially if these recommendations are backed up by an independent financial adviser (IFA). However, what considerations should savers bear in mind if they run into lengthy delays?
Why do delays occur?
After an individual decides to switch pension providers following the recommendations of an adviser, a letter of authorisation is sent to their existing provider. From here, any funds are removed from investments that the saver has with their existing scheme – meaning that they will not continue to grow again until they are transferred over. Unfortunately, My Pension Expert has seen some clients lose as much as £900 in some cases having been forced to wait for lengthy periods for the transfer to be completed.
Generally, it is expected that these funds will be released within 28 days of the existing provider receiving this letter. This period allows for necessary security checks to ensure savers are not transferring funds into a fraudulent scheme. That said, it is not unusual for this process to be delayed significantly to, often for no apparent rhyme or reason. Indeed, I have seen cases stretch out for an additional 85 days.
Throughout this period, there is little advisers can do to hasten the process, other than send further letters, emails and phone calls to check in on the progress of the transfer. Given the lack of transparency about why these delays are occurring, savers might feel frustrated and demoralised. So, what can be done?
Taking action
If savers feel as though they have been unnecessarily subjected to delays, or if they have lost money as a result of long waiting times, the Pension Advisory Service recommends making a claim. Advisers should be able to assist this process by providing any evidence of correspondence with the existing provider – however, it is important to note that individuals might find themselves waiting even longer, while they wait for a ruling regarding compensation. Further still, this process comes with no guarantees to savers.
As such, the financial services industry must take a stand against needlessly length delays. For one, this will entail greater collaboration between the Financial Conduct Authority (FCA) and other independent regulating bodies, such as The Pension Regulator and the Pension Advisory Service. Together, these organisations should work to produce new and improved guides, including best practice and timeframes that detail exactly how long the transfer process should take. Doing so should ensure that ceding providers are held to account.
In the meanwhile, advisers must reassure their clients that they are doing all they can to guarantee that the transfer process is as smooth and painless as possible. As I have already mentioned, IFAs should keep their clients regularly informed about the progress of their case, as well as maintaining a log of evidence showing any correspondence with the ceding provider to assist any claims, should an individual wish to go down this route.
Do not be deterred
Ultimately, ceding provider delays can be challenging for both savers and their advisers. However, this should not put individuals off from exploring their options where their retirement finances are concerned. While the financial services industry must clearly do more to improve this state of affairs, I am optimistic that with a collective effort, the industry will gradually begin to see better outcomes as far as delays are concerned.
Until then, savers should remember that in the grand scheme of things, switching to an alternative provider can be extremely beneficial to their pension income further down the line.
