Industry experts have queried whether drawdown charges will be cut once the new rules are implemented in April 2015, as it is perceived that administrators will have less work to do.
Speaking to FTAdviser, Robert Graves, head of pensions technical service at Rowanmoor Pensions, said he expects administration costs for clients to drop once the new Pension flexibilities are brought in from April 2015.
The new pension flexibilities are currently under consultation but if they stay as they are drawdown limits will be scrapped from April 2015, among other things.
Mr Graves said: “If the rules are input as proposed, administrators will not have to conduct three-yearly or annual reviews for those in drawdown and therefore it will become cheaper to administer drawdown as you do not have to charge for those reviews.”
But Greg Kingston, head of marketing at Suffolk Life, said that while he agrees with Mr Graves’ view he added it was “overly simplistic”.
He said: “If a provider operates drawdown in April 2015 as they do today then yes, it should be cheaper.
“But the more important question is: how far have consumer expectations been raised post-Budget, and are the current drawdown solutions likely to meet them post April 2015?
“I expect the answer to that is no, and if new solutions come with greater flexibility and complexity then costs may not lower.
“What we may see are different and innovative approaches to delivering pension income and the subsequent costs they may need to support it may be different.”
Mike Morrison, head of platform marketing at AJ Bell, added: “I take the point but I don’t think charges will be lowered.
“If someone goes into drawdown, it would still be prudent to have a review.”
Martin Tilley, director of technical services at Dentons Pensions agrees, adding that while providers may not be conducting the reviews “prudent advisers” will still be wanting to assess remaining funds versus income levels “so the role and rudimentary calculations may fall on them”.
He said: “This is also only a small part of Sipp administration, the decumulation phase.
“In addition, there are others pressures on Sipp providers, such as fees. Capital adequacy will be announced imminently, beefed up processes and procedures may be required as a result if the thematic review outcome, due imminently; guidance guarantees to be the responsibility of providers and above all resourcing a suitable service proposition, which has previously suffered by the previous continual reduction of fees.”
Claire Trott, head of technical support at Talbot and Muir, adds there may be charges that providers currently levy that may be “irrelevant” if the proposals are brought in as expected.
She said: “However there are schemes that offer bundled or percentage charges who may not reduce their fees accordingly and advisers should be aware of what they are paying for now and what they may be charged in the future.
“There, however, may be other issues to consider such as the increased use of partial or phased drawdown to protect death benefits, this may see additional crystallisation charges because we would still need to charge to administer the crystallisation, etc.
“This could easily outweigh the triennial review charges over a period of three years, even if the actual individual charge is less.”
