NEW: James Jones-Tinsley: All change for pension transfers

In a new monthly column for SIPPs Professional, SIPP expert James Jones-Tinsley reviews the latest changes in the pension transfer market. In pensions, the only constant is change. As we await the next big change with the abolition of the Lifetime Allowance, I sense that - as each day of government inaction passes by - the ability of achieving its abolition by 6 April 2024 grows ever fainter. And yet, there is one area of pensions where change has been both constant and significant over the past few years; namely pension transfers. Hindsight, sadly, demonstrates that not all change is good. The ‘free-for-all’ that George Osborne’s ‘Pension Freedoms’ of 2015 unleashed - at least where defined benefit (DB) pensions were concerned - led to many issues, illustrated most graphically in the volume of unsuitable transfers that took place from the British Steel Pension Scheme. The Financial Conduct Authority (FCA) - arguably late to that particular party – set about putting together a raft of regulatory changes to stem the flow of inappropriate transfers taking place from DB schemes to, more often than not, self-invested personal pensions. As well as imposing more stringent qualification requirements on pension transfer specialists - against a backdrop of increasingly draconian professional indemnity terms - the ‘jewel in their regulatory crown’ was the banning of contingent charging – and, in my opinion, rightly so. So - has their masterplan worked? According to a recent Freedom of Information request to the FCA, the number of firms holding the relevant permissions to provide DB transfer advice fell from around 3,000 to 1,048 in the four years to May 2023. Consequently, it is now more difficult for DB pension scheme members to find an adviser who is appropriately qualified, with the relevant experience, to advise them on the suitability of a transfer-out. And, although the FCA’s starting point is that a DB transfer is unsuitable in most cases, there will be a small minority for whom a transfer-out is appropriate. Add to that the notable fall in transfer values, as a result of changing economic conditions over the last couple of years. Yes – the value of their deferred benefits within the DB scheme remains the same – but the days of seven-figure cash equivalent transfer values are increasingly a distant memory. And while the significant disparity in death benefits between DB and defined contribution (DC) pensions - that Osborne’s pensions reforms of 2015 introduced - created another incentive to transfer-out, today’s DB pension transfer market is looking increasingly moribund. But pension transfers are a double-edged sword, particularly where DC pension transfers are concerned. What is of primary importance here is the time it takes to move a pot of money from one provider to another. The Origo Transfer Index (OTI) revealed that, in September 2023, the average overall pension transfer time fell from 13.6 calendar days in June 2023 to 12.9 calendar days and covered around 92 per cent of transfers. Commenting on these figures, the CEO of Origo, Anthony Rafferty, said, “it is highly encouraging to see average pension transfer times across the transfers covered by the Origo Transfer Index have markedly improved over the quarter”, while arguing that some “market outliers” who typically use slow, paper-based processes, frustrate the reduction in overall transfer times across the board. Coupled with the admirable work being undertaken by the ‘STAR Transfer Initiative’ (https://www.joinstar.co.uk) to accelerate transfer times across financial services generally, the latest OTI figures offer positive change, and will hopefully help to avoid the need for future regulatory intervention where DC pension transfers are concerned. James assists colleagues on SSAS and SIPPs practice areas. He also presents to clients, advisers and other professionals on pension matters, liaising with the media on changes to pension legislation and its likely impact on consumers. James D Jones-Tinsley FPMI APFS This email address is being protected from spambots. You need JavaScript enabled to view it. Tel: 0333 11 11 222

NEW: James Jones-Tinsley: All change for pension transfers

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