Trapped savers in legacy schemes that will not offer new pension freedoms coming into effect next April could pose a major challenge for life companies, with one adviser raising the spectre of potential lawsuits from disenfranchised members facing hefty exit fees.
Jamie Smith-Thompson, managing director at Kent-based specialist pension advice firm Portal Financial, said the admissions by many firms that they will unable to offer access to members’ funds and may levy fees to transfer could presage claims for unfair treatment.
He said: “Many pension schemes are already saying that they will struggle to offer the new freedoms for pension access as they are unwilling, or simply cannot afford, to implement the technology required to facilitate it.
“We believe there will be a backlash from members from next April as they will feel discriminated against. Moreover, member pension schemes need to be prepared for this and, ultimately, must face the fact that some members may seek legal recourse.”
An article in the Sunday Times this week revealed that the government will not force companies to ensure their schemes offer all of the new freedoms, and that a number of pension firms have already confirmed they have legacy schemes that will not do so.
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.
Joanne Segars, chief executive at the National Association of Pension Funds, stated that while the vast majority of savers will be able to make use of the new freedoms without any additional costs, some people in older style schemes will not be able to do so.
The Office of Fair Trading undertook a market study of workplace defined contribution schemes last year, finding 99 per cent of savers will not incur any charge for transferring their pension pot to drawdown, but it also found a small number of schemes that will charge members.
“Anyone who is concerned they may be affected by this issue should contact their employer or scheme provider in the first instance,” Ms Segars added.
