More than 100 delegates attended the ‘Future of Pensions Transfers' event, co-hosted by Altus and SWIFT at SWIFT's London office in November - including representatives from the Financial Services Authority, Barclays, HSBC, Blackrock, Fidelity, JPMorgan and Citi - demonstrating the importance of re-registration to the pension marketplace.
It is not difficult to see why. The beginning of auto-enrolment for UK pensions in October could ultimately see up to eight million new pension savers, with a further seven to 10 million workers contributing more to existing schemes. Ultimately, the changes are expected to lead to around 670,000 employers contributing towards their workers' retirement for the first time. Targeted at low-income workers, typically employed in high-turnover jobs, this is possibly the biggest change to UK pensions since the establishment of the Welfare State.
Edward Glyn, Director, Funds, SWIFT, said: "The UK pension industry is facing one of the biggest shake-ups in living memory. The changes brought about by auto-enrolment will combine with growing competition between platform providers to create significant operational challenges for the industry. Through events like these and working with key industry bodies, SWIFT brings together industry participants to collaborate on common solutions for non-competitive challenges such as automated pension transfers."
In a session called "Pension transfers: past, present and future", Malcolm Small, Director, Portfolio and Retirement Planning at the Tax Incentivised Savings Association (TISA), said the industry had to improve current processes - which are time consuming and expensive - and that it must learn lessons from experiences with regulations like the Retail Distribution Review (RDR) and act quickly together to create an industry solution. If the industry does not streamline and automate the pension transfer process, then it will face crippling pension transfer volumes, of very low value pots, which could potentially deliver massive value destruction for the industry.
The TISA Exchange demonstrates that industry solutions can work for both the community and the regulators.
Malcolm Small, TISA
Small argued that SWIFT, as an industry owned utility, is in a great position to help gather consensus, and to supply the technology and standards to implement an industry-led solution. He said: "Topics that affect consumer outcomes are firmly in the sights of the Financial Services Authority and other regulators. If firms' don't act, they will ask, why not? The TISA Exchange demonstrates that industry solutions can work for both the community and the regulators."
The event highlighted the practical challenges posed by pension portability. It will mean a huge increase in the volume of data flowing between pension providers, employers and their employees. Some estimates suggest there are over 650 different payroll and HR file formats in use today.
In a session on ‘Open Standards for Pension Transfers' Ben Cocks, Director at Altus, called for the industry to act together and supported the work of industry bodies, including SWIFT, in pursuing common standards. "We cannot afford to consider each of the challenges around transfers separately. Customers want to transfer from occupational direct contribution to GPPs and from GPPs to SIPPs, and to hold the same funds in SIPPs as they do in ISAs. In the past, solutions have been provided by and for just one part of the industry, but if we want to provide a consistent solution to customers and allow providers to make the most of their investment in transfer solutions then we must join up our thinking."
Altus' Cocks agreed that the TISA-led re-registration initiative has shown what can be achieved through industry wide collaboration and called on the pensions industry to implement it. "The resulting framework of technical standards and legal agreements has encouraged the development of a range of competitive solutions from technology vendors to connect up the industry in a consistent and cost effective way. This initiative has now been extended to bring the same benefits to pension providers. The solution to the pension transfer challenge already exists; we just need to get on and use it."
The solution to the pension transfer challenge already exists; we just need to get on and use it.
Ben Cocks, Altus
The half-day conference also looked at the impact of auto-enrolment in the context of the evolution of the marketplace and the development of third-generation platforms. David Moffat, Group Executive of International Financial Data Services, highlighted the importance of pensions as a source of business for platforms and said that this is only likely to grow in the future, but called for a more holistic approach to financial planning if the industry is not to risk losing an entire generation of customers.
Said Moffat: "Meeting RDR requirements has rather held back platform development in the last couple of years, but many are now looking to significantly extend and improve their overall offerings. The next development stage for platforms will be to broaden and improve their service for both younger clients and those in retirement. This move from primarily offering asset accumulation wrappers to include debt and protection services in early years and annuity, LTC and IHT planning in retirement holds out the prospect of platforms offering true cradle to grave propositions."
Rounding up the conference, SWIFT's Glyn said the industry is moving in the right direction. He said that the funds community has made a significant commitment to SWIFT and the ISO20022 standard, noting that current estimates suggest about 70% of all UK DC Corporate Pension assets are traded across SWIFT in an STP environment. He said: "Auto enrolment will be a real game-changer for UK providers with the opportunity to service millions of new pension savers. SWIFT's continued focus on deepening backward compatibility means that the industry will be able to leverage their investment in SWIFT, ISO and the ViaNova market practice to ensure streamlined pension transfers between all participants."
The first ever automated fund transfer went live over SWIFT at the beginning of December, when fund platforms Fidelity and Ascentric used the Altus Transfer Gateway to start processing live transfers using ISO20022 with IFDS' fund manager clients and three of its clients.