Historically, the finance industry has faced heavy criticism for its inability to promptly transfer savings, investments, and pensions from one company to another. Unfortunately, these delays have made consumers accustomed to transfers taking weeks or even more than a year in the worst cases. For someone waiting on their pension transfer and possibly only source of income, these delays can cause hardship and, ultimately, discourages people from using specific firms.
Of course, the transfer process can be slowed down by genuine mistakes, such as customer paperwork errors and other various legitimate reasons. New due diligence rules introduced in November 2021 mean that any transfers showing specific risk indicators for fraud are flagged, checked, and, if appropriate, nudged towards Pension Wise guidance. These rules were designed to enable providers to protect customers from falling victim to scams by halting the transfer. Unfortunately, an issue that has stemmed from the new protection laws is that many false positives are being produced, thus delaying valid transfers. Other complications the industry faces arise from some pension providers having limited resources and many still using legacy systems and outdated forms of communication, like faxes, which are decades old.
Where other financial processes have improved thanks to modernised technology, this sector has remained needlessly stuck in the past.
The Consumer Duty Rules
The Financial Conduct Authority (FCA) recently published its final rules and guidance on Consumer Duty, an entirely new set of conduct rules aimed at protecting retail consumers. These rule changes have already been described as the most significant regulatory and cultural shift over recent years and focus on producing good outcomes for consumers – something that has been severely neglected within this sector.
Consumer Duty guidance has prompted questions on who the new rules apply to, how firms can implement and monitor these changes, and how they will provide better consumer protection. However, although some might rely on the ambiguity of ‘good customer outcomes’, the FCA has been transparent regarding pension transfers and Consumer Duty by providing examples of foreseeable harm.
FCA
These include “consumers finding it too difficult to switch to a better product or different provider because the process is too onerous or unclear.”
STAR and Consumer Duty
The new Consumer Duty rules will soon come into play, and the sector will be obliged to address these issues – that’s where the STAR initiative can help.
STAR is a new award scheme, to tackle the issue of the amount of time it takes to transfer savings, investments, and pensions from one company to another. Because of the complex ecosystem involved, it is not possible for any one firm to fix this on its own. Transfers involve platforms, insurers, fund managers, re-registration and transfer intermediaries, custodians, third-party administrators and trustees. It also falls across multiple regulatory jurisdictions, with the FCA, The Pensions Regulator and Department for Work and Pensions, all having an interest in different elements of the system. The STAR initiative was introduced as an alternative to regulation or legislation, to enable the industry to voluntarily get its house in order. For this reason, two independent not-for-profit organisations (Criterion and TeX), joined forces to manage the improvements for the industry. The STAR initiative has now reached the point where it has been able to reward good electronic transfer performance with bronze, silver, and gold. STAR accreditation is designed to measure and accredit transfer performance across the industry. The awards are designed to both reward good performance and encourage improved performance.
The STAR initiative goes hand in hand with the Consumer Duty rules, with STAR participants showcasing that they’re focused on achieving timely transfers and good consumer outcomes. Through the STAR annual awards, the industry will improve over time with a collective investment in improved processes, technology and transparent customer communications.
We strongly encourage all pension, savings and investment providers to join STAR – the biggest cross-industry collaboration in decades.