Findings from our multi-firm review of life insurers’ pension transfer process.
1. Introduction
In our life insurance portfolio letter: insurance market priorities 2023-2025[3] we raised concerns about the poor customer service some consumers get from life insurance firms, particularly slow transfer and claim settlement times.
We said we would review how these firms’ service delivery compares with their stated standards, and how it varies across different firms.
In November 2024, we published our first findings on the process for life insurance bereavement claims[4].
Since then, we have looked at pension transfer times and how ceding schemes (the pension scheme where the pension assets are being transferred from) monitor their customer service.
As with bereavement claims, customers may request pension transfers at a point of significant change in their lives, and when some may be demonstrating characteristics of vulnerability.
2. Summary of our findings
Our findings suggest that firms are well-intentioned and seek to ensure consumers receive good outcomes when transferring their pensions. They also show that ceding schemes made most transfer payments within a suitable time of receiving the request to transfer. We found that more than three-quarters of the firms in our sample completed all transfer requests, on average, within 20 days.
We found that where both the ceding schemes and receiving schemes use a digital platform to process a transfer request, those transfers usually proceed more quickly than transfers made manually through a paper application.
While completing transfers quickly is often in customers’ best interests, in some circumstances applying additional steps and checks can help reduce the risk of consumer harm and support good outcomes. This includes giving customers sufficient opportunity to understand and assess their options, acting as positive friction (introducing small barriers to the process, in this case, to help customers think about their decisions).
We do not set an expectation for firms on how long a pension transfer should take. However, some firms have taken significantly longer than their peers on average to complete a transfer. Firms also told us about the challenges they were facing, particularly when deciding how to apply additional checks to protect customers and when responding to increased demand. Most firms told us what they are doing to tackle these challenges.
3. Our expectations of firms
The Consumer Duty came into force in July 2023 for new and existing products and July 2024 for closed books (products no longer being sold). It requires firms to act to deliver good outcomes for customers. Under the Duty firms should enable and support retail customers to pursue their financial objectives.
There are many reasons a consumer might consider transferring one or more of their pensions, including:
- Moving into pensions which offer a different range of investments.
- Benefiting from lower charges or better service (including online experience).
- Getting access to a wider or more suitable range of options for taking pension benefits in retirement.
- To consolidate pension pots to help to track and understand their total pension savings.
Firms should enable and support their customers to make good choices as set out in PRIN 2A.2.20.G(3). Customers should be able to transfer their pension without unreasonable barriers or delay, such as ‘sludge’ practices that create barriers to customers changing products.
If a transfer is unnecessarily long, this could have financial consequences if the delay affects a customer being able to draw benefits or get favourable annuity rates. A delay can also have an impact on investment opportunities and increase administration costs, potentially reducing the transfer’s value. They can also have a negative impact on the industry, reducing customers’ confidence and hindering their ability to manage their retirement planning.
In some circumstances, delays are due to firms carrying out additional steps and checks to protect consumers from scams. Firms often flag valuable benefits that customers would be giving up if they transferred their pension. In these cases, firms often direct a customer to take guidance or advice before making a final decision.
4. Pension fraud and scams
Action Fraud (the UK’s national reporting centre for fraud and cyber-crime) reported that over £17m was lost to pension fraud in 2023, with an average loss of £46,959 per person.
The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021[5] came into force in November 2021 to protect consumers from scams when they transfer their pensions. This legislation allows trustees and scheme managers to require information and evidence from members, assess the risks to the customer in transferring and decide whether a transfer request should proceed, be stopped (Red Flag), or paused (Amber Flag) while the member takes guidance from MoneyHelper[6], which provides free, impartial guidance. We expect firms to apply these regulations to support good outcomes. Firms should also be able to distinguish between reducing potential harm and delivering good consumer outcomes; they should not create unreasonable barriers.
Firms should also be alert to potential indicators of customer vulnerability when they receive a request to transfer (FG21/1[7]).
5. Who this applies to
The findings from this multi-firm review will be of interest to life insurers and firms operating pension transfers.
6. What we did
Responsibility for regulating pensions in the UK is split between the FCA and The Pensions Regulator (TPR). TPR regulates trust-based occupational pension schemes, these include members of defined benefit schemes and members of trust-based defined contribution schemes (including Master Trusts). We did not include these schemes in our review.
Our review focused on the life insurers’ products we regulate. These are a Defined Contribution Group Personal Pension or Individual Personal Pension including Stakeholder Personal Pensions, SIPPs and legacy products. We did not include Platforms, SIPP Operators or Trust Based occupational schemes in our review. Our focus was on the time taken to transfer a pension. We did not assess the time it takes for receiving schemes to allocate the transferred funds to a new product.
Our review was based on data we requested from 18 life insurers which, between them, administer over 12 million individual personal pension policies. This represents about 80% of the individual personal pensions held by life insurers.
We asked firms to tell us the average time it took them to complete a pension transfer. We also asked them to split this between transfers where no additional checks were required and those where they were. We also asked firms how they monitored and delivered their transfer process, and any challenges they faced in achieving good customer outcomes.
7. Further detail on the findings
7.1. We asked firms to tell us how long it took to complete a pension transfer
From the data we received, we found that the firms we reviewed received nearly 1 million transfer requests over a 12-month period. Most of which were cash transfers, where the assets held within the ceding scheme are sold and the proceeds transferred to the new scheme in cash. Five of these firms were responsible for over two-thirds of requests. About 87% of these transfers were processed by firms that told us they complete all transfers within 15 days.
Where a transfer required no additional checks, we found that over three-quarters of the firms completed these transfers within 10 days, with the shortest time being 5 days.
For transfers where additional steps and checks were carried out, half the firms in our sample took between 41-80 days to complete these transfers on average, with the rest taking between 26 and 160 days.
Most firms told us that they use the Origo Transfer Service (OTS). This is an electronic platform that lets connected businesses transfer customers’ funds from one provider to another. Where a transfer can be completed through the OTS, they are normally quicker than a paper application, and can also be easily measured and monitored. A small number of firms told us they did not measure the full end-to-end time for some paper processed transfer applications.
Paper transfer applications were usually required where either the receiving or ceding scheme did not subscribe to OTS or where the transfer was more complex. Most firms using the OTS made over 80% of their overall transfers using this platform.
We saw no correlation in the average times recorded by firms when we compared the time taken to complete a transfer that required no additional checks, with those that needed additional steps and checks. Firms that had longer times for one did not necessarily have longer times for the other.
What we expect
Firms must avoid causing foreseeable harm from poor or slow service. We know good service is not just about how quickly the transfer can happen. It is important to ensure that consumers are protected from scams and to ensure that the transfer does not cause foreseeable harm.
Most firms were able to complete transfers within reasonable expectations but, for some, transfer times were longer than expected. We remind firms that under our Conduct of Business rules (COBS 6.1G.1) a firm must execute a request within a reasonable time. The Duty further supports this, and firms must avoid causing foreseeable harm through poor or slow service.
We are supportive of firms using technology, such as digital platforms, to transfer pensions when this is done securely and results in good customer outcomes.
7.2. We asked firms to tell us how often they applied an Amber flag for pensions transfers and the most common reasons why
We wanted to understand how often firms were conducting additional steps or checks on transfer requests and the common reasons for doing so.
The reasons firms listed that matched to an Amber Flag description in the Conditions for Transfer Regulations (2021) were:
- The receiving scheme included high-risk or unregulated investments.
- The receiving schemes charges were unclear or high.
- Overseas investments were included in the receiving scheme.
We did see some outliers. However, the data showed that once an instruction to transfer had been received by the ceding scheme, an Amber flag was applied on fewer than 2% of the transfer requests received.
What we expect
In some cases, applying friction before a transfer can proceed adds an extra level of consumer protection. Friction can give customers sufficient time to understand and assess their options and the risks. We expect firms to regularly review the information they use to decide when additional checks are required on a transfer, to satisfy themselves that the process is still driving the right outcome.
Under the Duty’s consumer support outcome, firms should consider whether they need to build positive friction into their processes to protect consumers from harm. For example, this could be to protect them from scams or inform them about the consequences of cancelling a pension policy, which could include giving up valuable benefits not offered in the receiving scheme. We expect ceding schemes to use these practices where appropriate, but not apply frictions that hinder customers from accessing their benefits. Again, firms must avoid causing foreseeable harm through poor or slow service.
7.3. We asked firms to tell us why they were stopping pension transfers
We wanted to understand why some pension transfers were being stopped. We asked the firms to tell us how many transfers had been stopped, and to split this between those stopped by the firm and those stopped by the customer.
While some firms were able to provide a split, most told us that there were nuances in how they collect this data. Most firms told us the data we asked for was easier to provide when the transfer request was made electronically (such as via the OTS) than when it was processed manually, such as with a paper application. This is likely due to the way firms can retrieve data captured electronically more easily. Some firms told us about difficulties in collecting data, given that products are often held on various systems run by different teams or where an outsourced service provider (OSP) is involved.
From the data we received, we found that, for most firms, fewer than 1% of transfer requests were stopped by the firm.
We asked firms to list the most common reason why they stopped some transfers. Those listed by firms matched to a Red Flag description in the Conditions of Transfer Regulations (2021) specifically:
- The member did not provide the required information.
- The member did not provide evidence of receiving guidance from MoneyHelper where required to do so.
- A regulated activity had been carried out by someone without the right regulated status (ie someone without the proper authorisation was professionally involved in the transfer process).
- The member had requested a transfer after an unsolicited contact (ie a cold call or message).
What we expect
Under the Duty, firms must monitor the outcomes their customers get. Good practice is for firms to collect sufficient data to understand why transfers are being stopped so they can effectively monitor and assess their customers’ outcomes. This includes where a process is operated by OSPs and where firms have inherited operating systems from acquired books of business as part of, for example, a merger with another firm.
The Conditions for Transfers Regulations 2021 were introduced to protect consumers from scams when they transfer a pension. We expect firms to apply checks to reduce the risk of consumer harm. Firms should be able to evidence how their practices are working to deliver good customer outcomes and be able to justify the benefits of additional steps in customer journeys.
7.4. We asked firms to tell us where the transfers were going to
Consumers request pension transfers for various reasons and each journey will vary depending on a customer’s individual circumstances. We wanted to understand whether the firms in our sample were able to record the type of product the transferring pension pot was transferring to.
Although all the firms provided some detail, the way they captured this data varied. This is partly due to customers often moving to another pension product to access a range of benefit options, such as an annuity or drawdown product, as part of their retirement journey.
Where we were able to compare the data, we found that about 40% of the number of transfers made went to other life insurers. A similar percentage were being transferred to SIPPs.
What we expect
Firms told us of examples of good practice, such as explaining valuable existing product features to consumers. However, as noted in our Discussion Paper (DP24/3)[8] we are concerned that some consumers transferring pensions do so without comparing the ceding and receiving schemes or understanding the implications of their decision.
Whether a pension transfer is in the customer’s interests will depend on a balance of factors and individual preferences. Under the Duty, firms should communicate with customers in a way that meets their information needs, is likely to be understood and equips them to make effective, timely and properly informed decisions. Both receiving and ceding pension schemes should consider how they are meeting both the consumer support and the consumer understanding outcome of the Duty, when engaged in a pension transfer.
7.5. We asked what challenges firms were facing in achieving their servicing targets for a pension transfer
Firms measure the delivery of the pension transfer process differently. Some firms told us they measure each part of the process and set Service Level Agreements (SLAs) against these, while others have an overall processing time as their SLA. Other firms operate hybrid versions.
All the firms provided us with details on the challenges they had identified in meeting their service targets. The most common were:
Requirements to carry out additional steps and checks
For some transfers there is a regulatory requirement for firms to complete additional steps and checks to protect consumers from scams. Although firms in our sample welcomed these checks, they pointed out this adds time to the process. This is particularly the case when an Amber flag is raised for consumers to attend guidance appointments with MoneyHelper before a transfer can proceed. Most firms in our sample reported that arranging these appointments added additional time and that customers are required to attend separate appointments if they are transferring multiple plans.
Lack of policyholder engagement
Some firms said that customers were often disengaged with the process, and this can cause delays when additional documentation is required to complete the transfer. This included, for example, when firms sought to ensure customers understood what guarantees and safeguarded benefits their existing pension offered. Firms also told us that other third-party requests for information, such as from HMRC and receiving schemes, often added additional time to the process.
Resources to manage increasing volumes of transfers
Most firms told us about an increase in transfer requests that has put pressure on their resource. Some firms told us that they receive transfer requests which are often bulked together. These types of requests are usually from proactive consolidators operating through a trace and consolidate service and are often targeted at ex-workplace schemes.
What we expect
We are concerned that some consumers may be deciding to transfer based only on the prospect of immediate or near-term reward, such as cashback on signing up to a consolidation service, and so may not be considering the full financial implications of their decision. Our review showed that firms in our sample shared this view. We recognise the efforts firms already make to flag up to customers the often valuable benefits of their existing scheme.
Although we know firms face challenges, we expect them to have sufficient resources to manage foreseeable customer demand. With the launch of pensions dashboards (which will allow consumers to see all their pensions in one place), it will be easier for consumers to track their pensions. This may drive higher demand to consolidate pension pots. We expect firms to be resourced with sufficient, well-trained staff to service the products they have sold or acquired and be able to respond to foreseeable spikes in demand.
7.6. We asked firms how often they review their pension transfer process and changes they have made or are planning to make
Most firms were able to explain how often they review their pension transfer process and what changes they had made to improve customer outcomes, often as part of their response to meeting the Consumer Duty.
Some firms told us they identify the pension transfer process as a ‘high risk’ customer journey and have improved staff training and customer information as a result. This includes setting out, at an early stage, the requirements and expectations on timescales, including when additional checks are likely.
Some firms also told us how they share issues and trends on pension scams through industry forums, helping to raise awareness of emerging threats more widely.
Firms told us how they keep ‘clean lists’ of receiving schemes, with some firms operating different levels or tiers that dictate the level of additional checks required before a pension transfer can proceed. We saw different time intervals for reviewing these lists, ranging from quarterly to annually, or updating them periodically when they get new intelligence (often through industry forums).
What we expect
Under the Duty’s consumer understanding outcome, we expect firms to support consumers in making informed decisions. This means they should ensure their communications meet their customers’ information needs. They should test, monitor and adapt communications to support good outcomes.
We saw good intent from firms to support good customer outcomes and note that positive friction can help reduce the risk of consumer harm. What amounts to the appropriate level of friction will depend on the circumstances. We expect firms to use their judgement, supported by their monitoring, and be able to evidence the customer benefits of additional steps added to customer journeys.
Where a firm has concerns about a particular transfer because they have raised a Red or Amber flag, or have refused a transfer, they should report this to us[9]. Firms should give us as much information as possible when they report concerns to us so we can identify the firm involved and the number of customers potentially affected.
8. Next steps
Our review of the pension transfer process has provided evidence that life insurers recognise the relevant rules and our expectations of them. Firms manage and monitor the pension transfer process and have good intentions when it comes to protecting customers from scams.
We saw good practice from firms reviewing their processes to support good customer outcomes. Our findings also suggest they complete most transfers within a reasonable time. However, we did identify some firms with slower service times, and we will be following up with them.
In December 2024 we published our Discussion Paper (DP24/3)[8] Pensions: Adapting our requirements for a changing market. It asked for views on how best to ensure consumers are empowered to make informed decisions about whether to transfer. It also asked whether firms need additional measures to make the transfer process more efficient for those consumers who have made an informed decision to transfer. We will publish feedback and any consultation proposals in due course. We want to work with industry to help consumers navigate their financial lives to boost trust, encourage product innovation and ensure consumers have the right information and support. This will complement our ongoing programme of work, including our consultations on The Value for Money Framework[10] and Advice Guidance Boundary Review[11].
We said in our letter to life insurance companies that firms should have a clear view of the standards they are trying to achieve, demonstrate that they provide effective support to customers and make sure customers receive good outcomes. Our review suggests that most firms demonstrate they are meeting aspects of these expectations when they receive an instruction to transfer a pension.