An inefficient model
Myths and parables reveal fundamental truths about our shared reality. The Tower of Babel – whether real or just a great illustration – reminds us that it’s hard to build great things together when people can’t easily communicate. The story has a lot to say about how UK pension transfers work and the inefficiencies built into our current operating model.
Genesis 11: “Behold, they are one people, and they have all one language, and this is only the beginning of what they will do. And nothing that they propose to do will now be impossible for them. Come, let us go down and there confuse their language, so that they may not understand one another's speech.”
This is especially true when it comes to helping customers transfer their investment portfolios. In many instances transfers take weeks to complete. And yet in others, the swap happens in mere minutes. Why the difference? Because the pension community is a melting pot of different languages and communication between groups can be difficult.
In the UK, transfer services are split among several incompatible services. The customer's ISA or pension is typically moved rather rapidly if both the new and old providers engage in the same service. However, the transfer tends to fall between the cracks if the two suppliers do not use the same service.
An in-specie SIPP transfer between a life office and a platform or a Cash ISA transfer between a bank and a platform may have to resort to a paper process that could take weeks to complete. In contrast, a complex in-specie ISA transfer can be completed very quickly (sometimes even in minutes) when it's done between two good platforms.
Only TeX Open Transfers offers numerous interoperable system providers and open standards among all the services. In other words, TeX offers a universally understood language. The other services could potentially work together with TeX, although this has not yet happened.
Starting in 2015, the FCA began pushing the industry to address the substantial disparity in transfer times. In response, the industry established a new working group with the catchy abbreviation (TRIG) and a somewhat more serious long form (Transfers and Re-registration Industry Group).
The TRIG team had a solid understanding of the issue and in their initial report skillfully outlined the difficulties with standards, governance, and interoperability. The report received an overwhelmingly positive reaction from the industry and broad agreement on the need for interoperability between services.
Unfortunately, it has proven difficult to get all the transfer service providers to communicate with one another, which has slowed progress. As a result, in its recently released final report, TRIG decided not to address interoperability and instead limited its suggestions to transfer times and customer communications. The FCA has recently been quieter on the subject of transfers and may no longer be as interested in them as they previously were.
Therefore, it appears some customers will be left waiting while we babble at each other for a while longer.