Good practice guidance for defined benefit (DB) transfers

by John Wilson   •  
Blog

The Pension Administration Standards Association (PASA) has released new guidance on DB transfers[1] which, according to the Chair of the DB Transfers Working Group, James Ellison: “sets out the principles and suggested simplified approaches for faster, safer and more efficient transfers which comply with regulations.”

The principles (page 5 of the guidance) are based around member experience, communications, templates and technology. The guidance is voluntary but PASA expects the Pensions Ombudsman to reference it when considering complaints. The objectives of the guidance are:

  • Improve the overall member experience through faster, safer transfers (but without prescribing target turnaround times).
  • Improve communications and transparency in the processing of transfers (keeping members informed and managing expectations).
  • Improve efficiency for administrators (using standard forms and templates, and considering greater use of automation of transfer calculations and processes).

Key takeaways for trustees and administrators

Overall, the guidance is a useful sense check for transfer processes, procedures and templates and it also include practical tips on issues not covered by regulations (such as honouring transfer values even though the complete application to transfer was received out of time).

  • The guidance takes into account the transfer value changes that came into effect at the end of November 2021; in particular, under the changes, a statutory transfer can only be made if one of two Conditions is met (see Appendix I of the guidance).
  • Pension scams affect a minority of DB transfers so, while some scrutiny is required, this should be focused on those transfers which are likely to represent a higher risk of being a scam. Transfers at low risk should be processed “as speedily as possible”.
  • Some elements of the transfer process are outside the control of the transferring scheme administrator. Nevertheless, there are steps that can be taken to minimise ‘down time’. PASA expects all administrators to follow the principles in the guidance and limit the ‘stop the clock’ downtimes through ‘active management’ of third parties.
  • PASA expect all requests for transfer information from an adviser to be based on the FCA Transfer Template[2] and similarly, information provided by administrators should also reflect this Template (which can be completed manually or automated, depending on administrator preference).
  • The guidance covers all transfers except those specifically stated to be out of scope; i.e. bulk transfers, bulk member option exercises, schemes in wind-up/PPF assessment, illustrative transfer values (for active members), pension sharing on divorce and schemes where transfers have been suspended.
  • Processes for transfers should take account of the member experience, with the aim being to create as few steps as possible (the guidance sets out illustrative processes and includes a suggested template / links to other materials for schemes to use after a member requests a quote). When providing time expectations to members, administrators are asked to consider using calendar days rather than working days and this should be consistent across all communications.
  • For statutory transfers, there is a reminder that the quotation must be guaranteed for three months from the calculation date and sent to the member within 10 working days of calculation. To accept the guaranteed cash equivalent transfer value (CETV), the member must make a valid application in writing to the trustees within the guarantee period. The guidance includes recommendations to maximise time for the member to consider whether to proceed with the transfer; e.g. include a self-addressed return envelope where quotations are issued by post and include clear instructions on the supplementary information a member is required to submit, such as ID, whether digital or hard copy.
  • Trustees and administrators should, where possible, agree service levels with the scheme actuary for checking transfer quotes referred to them and should regularly review the threshold levels for actuary checking.
  • On the advice requirement and discharge forms, the guidance reminds trustees and administrators that, in determining the £30,000 trigger for mandatory advice, “it’s not the value of the benefits to be transferred considered in relation to the advice threshold – but the total value of safeguarded benefits under the scheme”. PASA provides a transfer discharge template and encourages standardisation in discharge forms. However, the guidance also highlights that “Many scheme administrators have built a Section 48 adviser declaration into their own discharge paperwork. However, it’s the responsibility of the adviser to provide this and therefore schemes should be willing to accept a separate letter covering the information required”.
  • Turning to the settlement process, the guidance acknowledges that every administrator will have their own settlement processes. Nevertheless, the aim should be to always ensure the standard forms and information received are checked for completeness “as soon as possible”. Early ‘triage’ is recommended and, once forms and information have been checked, an acknowledgment should be promptly sent to the member.
  • To accept a guaranteed CETV, the member must make a valid application in writing within the guarantee period. Payment must then be made within six months of the guarantee date.
  • If the member’s application to transfer is received too late to meet the guarantee date, they should be informed a recalculation is required straight away, and setting out a revised timescale. Some schemes may have discretion to permit some leeway, whereby the original transfer value quote is honoured, if members need more time to decide. Where a transfer value has dropped, the member/their adviser should be notified of this prior to processing (unless it has already been made clear that small changes to the transfer value after the guarantee date will be automatically applied).
  • Confirmation should be sent to the member once payment has been made. Also, for statutory transfers, the confirmation must state which Condition was satisfied under the 2021 Transfer Regulations, although it is also possible for the receiving scheme to make the confirmation.

[1] PASA-DB-Transfers-Good-Practice-Guidance-Final.pdf (pasa-uk.com)

[2] DB Transfers – The Pensions Administration Standards Association (pasa-uk.com)

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