AJ Bell has confirmed it will not be offering one of the three core options for retirees to access their pension freely from April, the ad-hoc lump sum option which the firm has branded “hufflepuffles” [*See update on page 2].
The firm said it would not be offering the option as in the retail space it believes there would be little demand for functions which it claims are more than covered by the new ultra-flexible drawdown.
One of three options available to retirees from 6 April, uncrystallised fund pension lump sums was detailed in early drafts of the Taxation of Pensions Bill and confirmed by the government last October.
It will allow savers to take lump sums from their pension after the age of 55 without crystallising the pot, with 25 per cent of each sum tax-free to account for the pension commencement lump sum tax-free cash. Some have said the rules allow pensions to be used like bank accounts.
Andy Bell, chief executive of AJ Bell, stated: “Pension savers are punch drunk with acronyms, but at least most of them relate to terms which the customer understands. This tongue twister of an acronym is reflective of the rush in which this legislation has been introduced.”
The platform has dubbed the option “hufflepuffles”, following debate in parliament about the best way to refer to them, with financial secretary to the Treasury David Gauke admitting it was “not perhaps the most elegant of names”.
Mr Bell also doubted whether the demand really exists in a retail market where flexi-access drawdown can achieve “the same and more”.
He said: “UFPLS was introduced for pension schemes, such as occupational, that couldn’t offer flexi-access drawdown.
“In the retail market, I sense that most customers and their advisers will still opt to take a maximum lump sum with no income under FAD as their preferred option; this has always been by far the most popular choice of customers entering drawdown.
“Let’s not forget the FCA’s recent Dear CEO letter which places a second line of defence responsibility on pension providers, this to help protect pension savers from making poor benefit choices; simplification can only help us all meet our responsibilities in this area.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, previously told FTAdviser that because there is no product sale involved with the new lump sum option, it is not subject to the same regulatory scrutiny as the other two.
Today he responded that the Financial Conduct authority has been handed a very challenging timetable by the government, “and whilst they are doing a very good job, it is hardly surprising that not all the regulations or all the relevant pension providers will be ready in time.”
Aegon also previously called for it to be scrapped altogether as it is “unnecessary and unhelpful”, with regulatory strategy director Steven Cameron stating that the more complex the new options, the greater the challenge of helping customers make the right choice.
Today, Aegon’s managing director David Macmillan told FTAdviser that it will offer the flexibility customers need in April, but focusing on helping customers to recognise the implications of taking a lump sum and seeing the benefits of managed/controlled income to fund a sustainable retirement.
“A fundamental part of this will be ensuring that customers fully understand the tax implications of their chosen option.
“This new income option is potentially open to abuse by unscrupulous organisations encouraging people to take their money out of a preferential tax environment and promising to invest cash on the savers behalf.”
Yesterday Axa Wealth become the latest of a number of firms to confirm it will be offering the full range of options, including ad hoc lump sums, from April in time for the new rules.
Update: AJ Bell has since clarified to FTAdviser it will be offering uncrystallised lump sums from April. It said it had been attempting to simplify terminology for savers by introducing the ‘full withdrawal FAD’ option.
peter.walker@ft.com
Additional reporting by Ashley Wassall