In previous posts I have mentioned the elephant in the room on small pots and other issues: it takes a long time to actually process a pensions transfer.  

I mean a properly crazy amount of time given that it’s (checks calendar) 2023!  I can pay the tax man in seconds but it takes weeks to transfer a pension for similar amounts of money?  Really? 

Pensions transfers still take longer than cheques used to take in the 80s. That can’t be right surely?

At this point people will start pointing at the FCA/TPR and muttering about this rule or that requiring checks. And of course the 14 days’ pause for DB transfers. These are what is known in the trade as “excuses”. 

I suggest the real reason is that nobody has much incentive to make the process of transferring out money slicker.  So it’s mainly still manual. 

What happens is that when a request comes in to transfer a pensions pot to another pension, a proper old school process kicks in. 

1. Record the request.

2. Put the request into a work backlog. 

3. Wait some days till request gets to the front of the queue.

4. Look at request, do checks, key transfer.

5. Sell funds. 

6. Send money to receiving scheme. 

All involving people keying things. 

Now even the non-techy people amongst you will start to wonder if this could be automated to make it quicker and actually cheaper to run. The answer is “of course it can”.

The conclusion to jump to is that the reason for this is that big bad pensions companies want the money for longer.  Evil pensions firms etc

I don’t think it’s that simple.  That’s not actually how this stuff works really from my experience.  The issue is that the business case simply does not get to the top of the pile. 

What does get to the top of the pile for investment is: meeting the requirements of the latest FCA/TPR regulation changes, delivering new business inflows, customer engagement, operational risk or major cost saving improvements.

But the money goes the wrong way for it to be a new business boost.  The client is leaving so who cares about engagement and the cost savings are not necessarily enough on their own to justify the spend over other sexier proposals.

That leaves two ways to get automation into the annual business plan: regulation and operational risk.

The regulators have been rather reticent to force providers to deal with the problem, hoping providers will sort it themselves.

Operational risk is essentially the concern that the current process is not fit for purpose or won’t be in the future.  Say for example if you relied on a small team of people to process pensions transfers and the amount of work is massively increasing each year but you can’t afford to hire more people.  At some point I expect the penny to drop with some firms that they cannot avoid this issue much longer as it could break their customer service model.

But if they don’t I would suggest the regulators might want to start considering how to make vague commitments to improve transfer times a lot more specific. 

Maybe that way we will have a 2020s pension system not a 1980s one.