Transfer industry: pot-follows-member transfers can cost just £1
Pension transfer systems have countered concerns raised by industry figures that implementing pot-follows-member could result in high costs, which may be passed onto members.
Pensions minister Steve Webb last year announced the government was reviewing transfer systems that include Origo Options and the Tax Incentivised Savings Association’s Exchange, to implement pot-follows-member pensions consolidation.
The paperwork that some companies require members to fill in order to perform their transfer [increases complexity] and that can be the case with occupational DC schemes
This was in answer to a wave of concerns from providers at the costs that would be incurred. Morten Nilsson, chief executive at mastertrust Now Pensions, said for pot-follows-member to work, the system used would have to be fully automated and would need a central database to check members’ details and what pots they hold.
“Where I get a little bit nervous is, who is able to deliver such an automated solution without creating some business model around it that will be very expensive?” said Nilsson.
However, companies already using Origo Options can make pension transfers for less than £1, said Paul Pettitt, managing director at the company, and this would be “absolutely achievable” for transfers under pot-follows-member.
These include defined contribution schemes, mastertrusts and contract-based schemes, he said. The cost of a transfer under Origo is typically less than £10, so the lowest cost is for schemes or providers carrying out a high volume of transactions, since the level of fixed prices brings the unit cost down.
Tisa Exchange has recently enabled its system to perform pension transfers, which will go live in September. It provides a central contract for all members that covers the liability and indemnity issues that arise out of electronic transfers, as well as providing a legal framework.
The company charges an annual fee of £2,000 to providers and a varying fee for each electronic message. Technical director Jeffrey Mushens said receiving parties do not pay ceding parties under the system, however ceding parties may charge their customers or schemes, but this would depend on the agreements they have in place.
Two companies – including financial service company Axa Group and pension administrator Cranfords – have registered to use this system for pension transfers so far, and another company is in the process of registering, said Mushens.
Companies will need to build their processes and systems to cope with the service level agreement that exists for it to work in the pensions world, he said.
“We want to take the manual processes out so you can get the cost down from a few hundred pounds to a few hundred pence,” said Mushens.
Ensuring transfer security
Origo has been involved in the Department for Work and Pensions’ workshops around pot-follows-member, where the idea of either one or two central registries for member and scheme data has been discussed.
“Obviously, if you’re sending automated transfers around the system or around the industry then you need to know that where they are going is a bona fide scheme or provider, to cut the risk of liberation fraud,” Pettitt said.
Laith Khalaf, head of corporate research at platform provider Hargreaves Lansdown, said transfers involving DC schemes can become more complicated than those involving contract-based schemes.
“The paperwork that some companies require members to fill in order to perform their transfer [increases complexity] and that can be the case with occupational DC schemes,” said Khalaf. It is the manual processes involved that increase the cost transfers, he added.