Star: Defining and demonstrating transfer excellence
Schemes already face a legislative requirement to carry out transfers promptly and efficiently, so they should voluntarily get on board with the industry-developed solution, says Tom McPhail
The introduction of Star to shape recognised industry-wide standards to promote good practice in transfers has been welcomed be welcomed by the government, consumers and responsible providers a like.
However, a minority have challenged and said it would be inappropriate to name and shame schemes that do not sign up to the Star initiative, as reported here.
The fact is that transfers are an important issue, affecting both our customers' relationship with their retirement savings and the industry's relationship with regulators, the media and those customers themselves. I'd like to address some of those concerns that have been raised and explain why I think they are unfounded.
First, and briefly, the context: the Star framework is being implemented to address the Financial Conduct Authority (FCA) and government's concerns that the market isn't serving its customers well. Essentially the industry was faced with a choice to either put its own house in order and demonstrate it had done so or face a regulatory solution imposed on it. As we all know, regulation has the potential to be complicated and unwieldy, covering multiple jurisdictions and counterparties; it would take a long time to implement, requiring widespread consultation. It was readily agreed to be in everyone's interests; the regulator's, the government's, the industry's, and customers', for the industry to implement a self-regulatory solution. It's a mature industry so why shouldn't it behave like one?
A pension is one of the most important and sizeable investments anyone will ever make, so how can it be acceptable that it can take months to move? All the organisations committed to Star - and there are many - are working towards reducing transfer times which is real progress for hundreds of thousands of people.
Critics fall into two broad camps, with some questioning why it shouldn't simply be a legislative requirement now, rather than a voluntary scheme. Others have challenged the appropriateness of pushing firms towards signing up for the scheme and, in particular, the use of naming and shaming firms and schemes that don't sign up to Star, something pensions and financial inclusion minister Guy Opperman has publicly supported.
There is in fact already a legislative requirement for schemes to carry out financial transactions (including transfers) promptly and efficiently. This comes from the 2015 charges and governance regulations, with responsibility falling on trustees to ensure they are complied with. FCA regulations set out similar provisions, such as COBS 6.1G, requiring firms to execute client requests within a reasonable time and in an efficient manner.
Unfortunately, it is clear many occupational schemes, insurance companies and platforms haven't been meeting these standards. The waters are also muddied by the reliance on counterparties to discharge their role in the execution of a transaction. For example, there's no point castigating a self-invested personal pension provider for being slow in executing a request when they were dependent on an external investment provider to execute an instruction from the client. This makes the formulation of detailed, prescriptive legislation very difficult; one of the reasons the FCA opted to work with the industry on a self-regulatory solution instead.
Having opted for a self-regulatory solution as an alternative to imposing a more prescriptive (and possibly heavy-handed) approach, it makes sense to ensure adherence to the expected standards. Without effective monitoring and identification of non-compliance, the self-regulatory solution loses its impact. For this reason, Opperman's support for naming and shaming of non-participants makes sense; firms need to not only meet the expected standards of administration but also be seen to be doing so.
The Star initiative builds on the cross-industry work of the Transfers and Reregistration Industry Group (comprising 10 trade bodies across the financial services ecosystem all working together). It puts ownership of the solution in the industry's hands and gives us the opportunity to deliver a solution ourselves, rather than being forced into one we might not like by regulators. It isn't a cop-out though, which is why the monitoring and reporting standards have to be meaningful.
To any critics of the Star initiative, I'd say this is not only a way to demonstrate your commitment to meeting regulatory standards, it is also a way to avoid more intrusive and onerous regulatory impositions in the future.
I believe our industry and the market needs to work thorough and solve issues itself when it can, the government legislates only when it is necessary. And the industry is beginning to deliver as we have started collaborating at regular working groups and are making real progress.
Tom McPhail is founding chairman of the Star steering group
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