As the issue of service standards becomes increasingly high profile providers must raise their game to avoid the possibility of government regulation. Helen Morrissey looks at what the industry is doing to improve matters
Service standards have long been an issue within the pensions industry. The time taken to process transfers in particular has been highlighted with even simple transfers taking several months to complete. This can have knock-on effects for both the adviser and their clients as these delays can cause much frustration for the client waiting to receive income from their pension. In addition the adviser has to spend large amounts of time and effort chasing providers for information. How this issue can be successfully resolved is open to debate but providers know it needs to be addressed quickly if they are to escape the prospect of government regulation.
"One key thing is that providers have not defined their processes so that people understand how long they should take," says Natanje Holt, operations director at Dunstan Thomas. "If you can establish a bottleneck point where things are going wrong then you can establish where the problem is coming from and put processes in place to deal with it quickly."
Several problem areas have been highlighted by advisers. These include a lack of trained administration staff, the need to upgrade back office systems and inconsistencies in the information different providers need to process transfers. All in all there is much that needs to be addressed but where can the industry even begin to start putting things right?
Industry wide standards
"If we are going to address this problem then I think we really need to have some kind of industry standards that go across all companies," says Kim Lerche-Thomsen, CEO of Living Time. "Different companies have different processes and this slows things down considerably. Several years ago I did try to set up a forum with other leading annuity providers to address this issue but we never really got anywhere. I think people do care about this issue but it's a difficult one to resolve when everyone has their own processes in place."
Trying to get so many providers to adhere to one set of standards voluntarily will be a massive task but there does seem to be enthusiasm for it. Providers such as Prudential and Axa have been working with the ABI in recent months to address this issue.
"The industry does agree that there is real room for improvement and there is an appetite - particularly among the larger providers - to improve this situation," says Aston Goodey, business development director - retirement income at Prudential. "Companies such as Prudential are already working with the ABI to develop a working model that can be introduced across all providers. Clearly there is not one simple solution and the legacy systems from which most providers operate make major systematic changes difficult in the short to medium term. Providers also need to take individual responsibility. Prudential has, for example, launched a transfer desk facility for advisers which is proving very popular. We estimate we can save an adviser the equivalent of £1,000 per case in time saved."
The will to change
The issue of personal responsibility is key. While some companies are undoubtedly making efforts to improve the situation the fact remains that there are many companies who are not making administration a priority. So just how much will is there within the industry to really make a change?
"I think providers are paying a fair bit of lip service to this issue but in reality I can't see the motivation to spend money on something that doesn't generate income," says Adrian Shandley, managing director of Premier Wealth Management. "You could be very cynical and say the longer the money hangs around then the more fees they will collect."
However, Chris Read, chairman of Dunstan Thomas disagrees saying that there is a real will to change within the industry.
"I think service provision is a real issue that people seem genuinely concerned about," he says. "There is certainly no agenda out there to provide bad service."
The main issue appears to be with closed life offices. As the money leaving their books is not going to be replaced by new business then where is their motivation to provide a rapid service?
"It's a big frustration for the adviser when you ask for information from some of the closed life companies," says Martin O'Gorman, pensions specialist at Origen. "They have no real desire to secure new business so the support just isn't there."
Read agrees saying that: "if you have a closed book of business then why go to the extra effort if you get nothing at the end of the day?"
However, it is clear that work needs to be done to bring providers up to speed if service standards are to improve. However, how can this be done? Should companies be named and shamed for instance?
"Naming and shaming is all well and good but what bigger purpose does it serve," says O'Gorman. "If the company is closed to new business then there's no point as they aren't going to commit any more resources to their back office systems. What we need is an industry-wide standard that all providers must adhere to."
How to regulate?
Self regulation seems to be the most popular prospect with all providers agreeing that government regulation should only be a last resort.
"If you look at the mortgage industry the Council of Mortgage Lenders imposed self regulation in the first instance," says Read. "By the time government regulation came in most providers were in a position to comply fairly easily. Maybe there's a role here for organisations such as AMPs to do a similar thing with pensions as I think it's an approach that could potentially work."
Lerche-Thomsen agrees that government regulation should be used only as a last resort and that the industry should look to resolve the situation internally.
"We already have so much regulation and the trouble is that there is always the law of unintended consequences if the regulation is not well drafted," he says. "Maybe if providers fail to transfer the funds within a certain amount of days then they should be responsible for any loss incurred by that customer or there should be interest penalties for late payments. The industry should be able to sort this out themselves though I do agree that if they are unable to do so then maybe the pressure of regulation will force them to do more."
So it would seem that the best way for providers to improve service standards is to continue their work with associations like the ABI to develop an industry standard. Strict time limits should be set for transfers with Goodey saying that the ABI guideline of 14 days to pay out tax free cash is "an achievable and acceptable goal." However, Shandley says each case needs to be looked at on its own merits.
"You have to take it on a case by case basis," he says." For stakeholders and personal pension plans then I think ten days should be the benchmark. However, if you've got a section 32 for instance then a lot of information is required to complete that transfer and I don't think ten days would be reasonable in that instance."
Lerche-Thomsen agrees that timelines for processes should be set out but also says there are plenty of other things providers can do to improve their service.
"I think overall providers should agree on timelines for different processes and report back on a quarterly basis as to how they have measured up against them," he says. "There are many things providers can do to speed up the service they provide. For instance, a lot of these companies are still sending payments by cheque through the post and the customer loses out. I would like to see more electronic transfers."
The industry undoubtedly has a huge task ahead if lasting improvements are to be made to service standards and there does seem to be a real will among many providers to develop their own standards. However, while self regulation will work for many it will be interesting to see if these standards have any effect on those providers who have been lagging behind. If these standards are not enforced rigorously then the only option available in the end may be government regulation. In an industry already drowning under the weight of regulation this must only be a last resort.
HOW CAN THE SITUATION BE IMPROVED?
- Standardised paperwork
- Electronic transfers of funds
- Guidelines stipulating timeline to effect simple transfers. Anything more complex should be tackled on a case by case basis
- More effective communication to the client.
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