Large-scale legacy changes not viable, says Scottish Life


    Scottish Life has blamed “substantial costs” and the incoming Retail Distribution Review for making changes to its executive pension plans, stating that it would be “totally disproportionate” to change the systems due to the substantial cost but limited use.

    In a letter to trustees from Scottish Life, seen by FTAdviser, the provider alerts trustees to changes being made to its executive pension plans, stating that although it will continue to accept any regular contributions into their plans at the current level, from 2013 they will be unable to offer them the option of making additional increases to regular contributions or transferring payments into their plan.

    Scottish Life told FTAdviser that it doesn’t make “financial sense” to make large-scale changes to its legacy products.

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    However, Julian Pruggmayer, IFA for West Midlands-based Financial Risk Management, believes Scottish Life is using this as an “excuse” to stop dealing with these products, largely due to liability.

    He said: “Every company used to sell them and they were governed by occupational pension rules. Investors would receive 1.5 times their salary as a tax-free lump sum. In 2006, the rules changed so the benefits were the same as a personal pension plan.

    “Before 2006, the company that took out the policy was liable for the missing tax, since 2006 the person who filed the return is liable. Scottish Life says that people are responsible in their new policies but in old policies, they still do it for them. Scottish Life’s move has nothing to do with the RDR but is due to the possible liabilities.”

    Mr Pruggmayer added: “Why aren’t they doing the same with all personal pensions that have been set up with commission? This is a binding contract - where is the clause on that contract that says they can alter this?”

    However, a spokesperson for Scottish Life insisted they were one of many providers making changes to legacy products due to the incoming RDR. He highlighted that legacy products “have always had small numbers” and recently legacy products “haven’t taken much new business”.

    The spokesperson said: “We need to make changes to our product range for the RDR and automatic enrolment. The cost of the work required to make the necessary changes to some of our older pension products would be substantial. While we firmly believe in supporting all of our customers through the changes, it doesn’t make financial sense for us to make large-scale changes to legacy products.

    “It would be totally disproportionate to change the systems. The contracts that we operate on were set up at a time when commission was the norm. A lot are still writing a lot of personal pension business and because of that, we are making the adequate changes to those systems.”

    Danny Cox, head of advice at Hargreaves Lansdown, agreed that most providers are winding down these contracts.

    He said: “I can’t think why you would want to increase contributions as they all got aligned during the pension simplification in 2006. It makes sense that if these are not going to be suitable for the post-RDR world, that providers stop additional contributions.”


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