Ahead of the dash for pension cash that is expected to ensue from April, we are currently witnessing a laboured launch of actual access options.
It was an unspoken caveat to the chancellor’s Budget peroration on pensions declaring that retirees would have “complete freedom to draw down as much or as little of their pension pot as they want, anytime they want”.
Yes: but they might not be able to do so directly from their existing scheme, as providers will not be forced to offer the freedom flexibilities.
As a result it has become a matter of more than academic interest, if very little surprise, which providers are going to grant the open access promised in the radical reforms, and which are not.
FTAdviser revealed yesterday that Axa Wealth was the latest to confirm the full suite of options across its range of self-invested products. It joins the likes of Zurich, Aegon, James Hay and (we think) LV, all of which will offer access to the whole fund, uncrystallised lump sums and new ultra-flexible drawdown.
And then there are the others. So-called ‘zombie’ closed book providers such as Phoenix Group and Equitable Life will not offer full access, while Legal and General, Prudential and Standard Life have all been on record as saying they might not for legacy customers.
Where is the regulator when you need it, I ask you, pledging to clamp down on all these egregious legacy charges? Oh.According to one survey, only 5 per cent of pension schemes plan to let members take a lump sum in April, while only 2 per cent will offer the full range of flexibilities.
I sympathise, I really do. Legacy schemes in particular are transitory products which make a contribution to support provider evolution through assets under management-based fees. Lose the assets, lose the value.
Similarly, for others such as The Pension Trust, which FTAdviser also revealed yesterday would not be offering all of the freedoms, it does not make business sense to go through the upgrades for a client base of 100,000 members with an average of just £5,000 in their funds.
What marks this firm, whose money purchase pension history is short and portfolio “immature”, apart from the others named above is that it will not charge members to take their money and run come freedom day.
Because that is the other caveat to Mr Osborne’s promise of free choice: providers will not even be obliged to waive any exit fees that might contractually apply to exiting members. In some cases, these fees can be as high as 20 per cent.
(Where is the regulator when you need it, I ask you, pledging to clamp down on all these egregious legacy charges? Oh. Anyway I digress.)
I understand and even to a degree support the long held principle of not requiring providers to make costly updates to systems to facilitate, in an extremely finite period of time in this case, the latest policy whims. I have no issue with the providers exercising this right, either.
In some respects this opens up an opportunity: one firm has already launched an offer of cheap, flat fee drawdown access for transferring savers whose liberty-to-be will not be with their incumbent provider.
I do not, however, think it is fair that these people should have to pay in some cases exorbitant fees just to be able to do what the government totemically and triumphantly told them they would be able to do. Where these fees act as an effective ‘trap’ they undermine the very essence of the rules.
It’s probably too late for the government to get involved again now - and it is probably unnecessary. I’d say we’re in Treating Customers Fairly territory, here.
Some will disagree with me and point to the contractual provisions enabling whatever charges that exist to be enforced. For my money if it doesn’t breach TCF to charge someone a huge fee to access their fund according to what will be their legal right, then I don’t know what does.
I hope the regulator sees it that way, too.
ashley.wassall@ft.com
