Personal PensionFeb 17 2015

Advisers in the dark on pension freedoms pricing

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Advisers in the dark on pension freedoms pricing

With less than seven weeks to go until the most substantial reform of pensions tax and access rules in a generation come into force, advisers are still in the dark on one of the most fundamental elements of consideration for new retirement income options: what it will cost.

Many providers have been busy unveiling their post-April propositions and announcing the freedoms they will offer from 6 April, but only a handful have so far given more than the most vague information over what they will be charging for flexible drawdown, or ad hoc lump sums.

FTAdviser contacted around 20 providers that have confirmed at least some elements of their product propositions, with most currently unable to provide pricing information. The vast majority expect to publish details at the end of February, or the beginning of next month.

A number of providers stated their terms and conditions specify they need to give clients 30 days notice when making a fee change. Some commentators have suggested an industry game of ‘chicken’ is taking place, with many waiting to see if a cost consensus emerges.

The four core options set out by the government to take income include an annuity, taking the whole pot as a cash lump sum, ad hoc lump sums without crystallising the pot, or new flexi-access drawdown.

In particular, individual payments taken through the catchily-titled uncrystallised fund pension lump sum will pose an interesting challenge for providers, who stand to lose substantial revenue in assets under management-based charges if clients withdraw huge sums.

FTAdviser understands that a number of providers offering the option are considering levying no charge for taking single lump sums, while others are planning flat rate fees of £100, for example.

Graeme Mitchell, managing director of Galashiels-based Lowland Financial, said while it is understandable that providers are struggling with changes announced less than a year ago, it is making his job harder.

“Not surprisingly, some are not publishing them [charges] yet, as they are now playing a game of Russian roulette and they don’t want to be the first one.

“At the end of the day just say the price: ‘this is the charge’. We are trying to get strategic and tactical plans in place but it is hard to do this when it’s unclear which providers we will use.”

Mr Mitchell added that the admission by a number of firms that they will only allow for simple lump sums from newer products, with those in ‘legacy’ schemes likely to have to pay to exit to access their money in this way, “will be a nightmare”.

Martin Evans, director of Newport-based Prism, said the lack on clarity on charges was a “major challenge” for advisers. He added he expects no real change in charges for those consumers with funds over £100,000, while smaller pensions will cause the “biggest headache for all concerned”.

Barry Neilson, business development director at wrap-platform Nucleus, said that 30 days notice is “fairly standard”.

However, he added: “For a more emotive issue, considerably more notice should be given - particularly if an adviser is involved. If there are significant changes, advisers need to review the proposition to see if it is still in clients’ best interest.”

Stephen Young, chairman at Sense network, said: “Because there is going to be so much competition, many providers are waiting until the last minute before revealing proposition details and prices.

“At one level, we welcome the competition as this should lead to investors getting a good deal. On the other hand, advisers do need to complete due diligence and training on these new propositions and this cannot be done overnight.

“We have asked all of providers to give us details as soon as possible. Any providers who leave this too late may find that we cannot include their products in the training and guidance workshops that we have planned for March.”

Mr Mitchell added: “We’ll just wait and see I suppose. It would be easier to plan ahead and advise.”

donia.o’loughlin@ft.com