Three stories caught my eye in the weekend papers that underline challenges ahead which threaten to undermine the idealised vision of a liberated pension landscape promised by George Osborne’s radical shake-up of tax rules.
The triumvirate appeared in the money sections of the saturday edition of the Daily Telegraph, FT Weekend and the Sunday Times respectively, and presented all-too-familiar cases of prevarication, passivity and bureaucracy among providers that could undermine the new freedoms when they come into force next April.
In the Telegraph, sub-standard service at Scottish Widows was put under the spotlight, after a saver was made to wait three weeks to get his hands on his own money after he cashed in an investment held with his income drawdown plan.
The paper correctly contends that this could augur ill for the brave new world: written under current ‘flexible’ drawdown rules, the policy is designed to offer the same unfettered access to funds that will be afforded to all when the new rules come into effect.
This is hardly an isolated case for the Lloyds Banking Group brand. The Telegraph story highlights similar delays experienced by advisers seeking information on guaranteed annuity rates, and we ourselves ran a piece last month citing the experiences of four separate intermediaries suffering interminable procrastination over a range of ostensibly simple queries.
Spokespeople for Scottish Widows quoted in both stories acknowledged that “recent service levels have fallen short of our normal high standards”. The concern remains, what if it is not the only large life insurer that cannot keep up with the demands of a newly empowered customer base?
This brings us on nicely to the Sunday Times article, which revealed that many of the largest providers may not be able to facilitate the promised free access for millions of customers, or at least not without them first forking out sizable exit fees.
The issue centres on a government admission that providers will not be forced to implement the changes, presumably due to concerns that the costs involved would be passed onto policyholders.
Phoenix, Legal and General, Standard Life and Prudential all admitted to the paper they might not be able to update older systems that continue to serve swathes of existing customers, meaning they may have to transfer out to access their savings. Most added that where exit penalties, that can be as much as 20 per cent of the fund, are payable, these will be enforced.
It all has echoes of the post-RDR commission kerfuffle that saw the regulator effectively turning a blind eye to ‘double charging’ for advice while providers pocketed trail built into existing policies.
Which brings me to the reasons why all of this is important.
An article in FT Weekend on Saturday reported the very first ever case of an annuity refund, after Prudential continued to process a conventional annuity sale for a patient who had been diagnosed with cancer.
Making this old fashioned case of grievous mis-selling all the worse was the unedifying buck-passing attempt by the firm, which initially said that as the customer had been referred by Royal London as part of a long-running tie-up between the two, it was not responsible.
The client in question had purchased the annuity after being referred by Royal London, in a sales process that involved no questions in relation to his health. During the ‘cooling-off’ he wrote to Royal London to inform them of his cancer diagnosis and this information was passed to Pru, which did nothing.
A letter from the individual’s MP prompted the staggering response that Royal London was to blame, a claim that was later rescinded following a robust response from the latter to enquiries from the FT. Pru has since refunded the policy in full.
So where does that leave us? With the most egregious example I’ve seen of why change is needed, and worrying portents of how the same providers that often fail customers now, could do so again even after the new rules become a reality.
These providers have coasted for years with benign indifference to their own inadequate and anachronistic systems and processes. If they are not careful, in the longer term the changes could increasingly make them an irrelevance.
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