Providers play down barriers to pension freedom

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Life companies and workplace pension schemes have played down claims that they are not ready for new pension rules expected next April, or that swathes of savers could be hit with sizable exit fees to take advantage of the new freedoms.

Earlier this week Kent-based specialist pension advice firm Portal Financial suggested that schemes and providers may face potential lawsuits from disenfranchised members claiming unfair treatment for exit delays and hefty fees.

Jamie Smith-Thompson, managing director said that many schemes cannot afford to implement the technology required to facilitate drawdown requests.

“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.”

Mr Smith-Thompson’s comments followed revelations in the Sunday Times that providers may not be willing or able to update systems for older schemes. The government has confirmed it will not force them to do so, only that it must allow clients to transfer out if they wish.

Phoenix, Legal and General, Standard Life and Prudential all admitted they operated such older schemes, and crucially that where exit penalties, that can be as much as 20 per cent of the fund, are payable, these will be enforced.

The ‘statutory override of defined contribution scheme rules’ in the rules could offer an escape for some: trustees will be given the power to introduce a more flexible approach, even where this contradicts existing scheme rules.

Adrian Boulding, pensions strategy director at Legal & General, said that an estimated 97 per cent of its customers will not have a penalty for encashment or transfer after age 55 - and that where a charge was levied, this would be the case whether it was to transfer or to access cash freely.

“In the minority of cases (less than 3 per cent) where policies have a charge for early encashment, the same charge is levied whether customers take a flexible retirement income from us or whether they move to another provider for their retirement income.”

A spokeswoman for Aviva stated that its pension customers will have full flexibility from 2015 if they wish to access cash or drawdown. “Many customers have products which do not inherently allow drawdown but we can support them to enable them to access other options.

“Only a small minority of our older pensions contracts carry any form of exit charges. It is certainly not our intention to put any barriers in the way of customers benefiting from the new pensions freedom and flexibility.”

Jamie Jenkins, head of workplace strategy at Standard Life, told FTAdviser that he recognised the difficulties for pension schemes in establishing what can be quite complex arrangements to allow the new flexible retirement options.

“As a result, we made a strong case for ensuring pension savers have the right to transfer, right up to retirement, in order to benefit from propositions that do offer such flexibility.

“The key will be ensuring that savers have somewhere to turn for support to ensure they are making well informed decisions; the combination of provider communications, the guidance guarantee and ultimately, advice, will help ensure this is in place.”

Third sector pension scheme The Pensions Trust stated that its rules permit members to make partial withdrawals, but it has not yet developed a drawdown facility.

“However, it has not been The Pensions Trust practice to charge or impose any financial penalty on transfers by individual members,” said a spokesperson.

“We would not be aware of the development plans of other pensions’ providers but we would hope that if they did not have the facility to support drawdown from April 2015 onwards, that they would treat any request from a customer wishing to transfer funds in a fair and understanding manner.”

Jessica Rigby, head of operations at the BlueSky workplace pension scheme, told FTAdviser that she was confident of having a drawdown option in place before next spring, without affecting the charging structure.

“We are also due to release a new service shortly following the implementation of the new drawdown option for BlueSky Pension Scheme members which could offer drawdown options to members of other arrangements.”