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Time is money: lifting the lid on ceding provider delays

Time usually benefits pension savers – generally, the longer an individual saves into their pension, the more it is likely to grow.

That said, there are occasions when time can work against a client, most notably when they are exercising their right to switch pension providers. By this, we refer to the delays imposed by ceding providers – pension scheme members’ existing providers – when releasing the funds of clients wanting to transfer to an alternative provider. 

Understanding ceding delays

After speaking with an independent financial adviser (IFA), some individuals will find that their needs are better met with another pension scheme provider. Should they wish to push ahead with the advice offered, the adviser will then set plans in motion and send out a letter of authorisation to the ceding provider.

This is where problems may begin to rear their head.

Advisers do warn clients to expect some delays with their transfer. After all, industry regulations ensure that ceding providers conduct thorough security checks before releasing clients’ money, to ensure it will not be going into a fraudulent scheme. It is expected that this process should take no longer than 28 days. 

However, there are no legal limits placed on the maximum amount of time it should take to process a transfer, leaving ceding providers with no sense of urgency. In extreme cases, My Pension Expert have seen transfers well surpass the standard 28 days, with some ceding providers taking an additional 85 days to release client funds.

Such delays come at an irretrievable cost to the client. This is because once the initial letter of authorisation is sent, the funds are removed from any investments within their existing scheme. As such, the funds are in ‘limbo’ until they receive the green light to transfer across to their new provider. And if the market moves throughout the transfer process, their pension pot will not grow accordingly. In My Pension Expert’s experience, some clients have been so unlucky as to lose almost £900 as a consequence of these delays – and this is money that they are unlikely to get back.

Unfortunately, all advisers can do is chase the ceding provider via telephone or email on behalf of the client, adding further frustration to the process. 

Clarity is key

Clearly, things must change. So, what can be done to improve this situation?

Put simply, the financial services industry requires a collaborative effort to drive any significant transformation. As such, retirement advisers and the industry at large must work together to make the transfer process more transparent.

For one, advisers must ensure that they are keeping clients in the loop every step of the way. This should begin by making the client aware of any potential delays that might crop up during the process so that they do not feel that they have been misinformed should a ceding provider default to lengthy processing times.

After sending out a letter of authorisation, advisers should reassure their client that they have taken sufficient action to instruct the ceding provider to release the funds. Likewise, IFAs would also do well to keep a running log of their contact, or any attempts to contact, the ceding provider. Doing so will allow clients to build up a record of evidence should they decide to pursue a claim against any obstructions to a transfer.

Furthermore, the FCA must actively work alongside organisations like The Pension Regulator and the Pension Advisory Service to produce coherent guidelines for best practice about the length of time it should take to process transfer requests. Above all else, this should ensure that providers are truly held to account so that individuals are not left out of pocket due to lengthy delays.

Ultimately, ceding companies must also acknowledge the part they have to play and come up with new processes to ensure that the client is always aware of any ongoing delays, as well as the reasons for why they have occurred. While overhauls will not happen overnight, a collective effort will be the antidote to unnecessary pension transfer delays, and the industry will start to see gradual yet positive change.