Tom McPhail, Head of Retirement Policy, Hargreaves Lansdown
“People have a right to expect financial companies to execute their instructions quickly, efficiently and securely. When it comes to transferring investments and pensions from one company to another, for years it has been normal to tolerate the industry’s inability to perform this basic task in a timely manner. We have got used to transfers taking many weeks, often months to complete.
For investors this uncertainty and delay erodes confidence in the system, discourages engagement, undermines market competition and can sometimes cause acute financial problems. For someone approaching retirement for example, who is trying to consolidate their pensions and to start an income withdrawal, delay can cause real hardship.
For financial advisers the cost of failure can be measured in additional administration costs and unhappy customers. It is in everyone’s interest to get this sorted.
Around two years ago the FCA announced enough was enough and demanded the industry sort out the problem. Because of the complex ecosystem involved, it isn’t possible for any one firm to fix this on their own. Transfers involve platforms, insurers, fund managers, re-registration and transfer intermediaries, custodians, third-party administrators, trustees etc. It also falls across multiple regulatory jurisdictions, with the FCA, The Pensions Regulator and DWP all having an interest in different elements of the system.
Regulation or legislation could be applied as a last resort, but it would be complicated, time-consuming and everyone, including the regulators wouldn’t like it. It would probably take years to define and implement effectively. So a voluntary industry-led solution is by far the best answer for everyone. We own the problem and we define how it gets fixed. The industry formed the Transfers and Re-registration Industry Group (TRIG) comprising 10 trade bodies. No one else was available, so I ended up Chairing the project. In consultation with the regulators, we drafted a framework for good practice transfers based on service standards, performance monitoring and regular reporting to the regulators. We then appointed a not-for-profit joint venture comprising TEX and Criterion, (the standards off-shoot of Origo), to take on the governance and administration of the standards under the brand ‘STAR’.
We’ve now got 22 companies signed up to the STAR transfers framework, with more companies joining all the time. These are the good guys: the companies that actively want to promote solutions for the benefit of all. We know there are pension companies and administrators that are happy doing things badly, relying on outdated systems and processes; sending pieces of paper in the post and waiting weeks to get things signed off. The only way to get these laggards and poor performers to improve is to normalise adherence to a commonly agreed set of standards.
We are also regularly reporting the names of the businesses who have signed up to STAR to the FCA and the DWP. As the system beds in we’ll report transfer performance data so firms that are doing well will be seen to be doing well. Everybody wants this problem solved. This is the moment when it happens. So I ask every insurance company, fund manager, third-party administrator, custodian and platform to sign up to STAR and become part of the solution. I also ask every scheme sponsoring employer, every trustee and IGC, every compliance department and shareholder to challenge the executives you work with: have they signed up to STAR yet, and if not, why not.”