Speaking to FTAdviser, Chris Smeaton, marketing director at James Hay Partnership, warned that many providers will struggle to offer these “transformational changes”, including drawdown and the new uncrystallised lump sum option, at such short notice.
“There was also very little in the way of prior consultation.”
Mr Smeaton’s concerns echo those raised in the late summer, when the government admitted it will not force providers to offer the new freedoms, or to waive exit charges for those unable to access options through their existing scheme.
Speaking to The Sunday Times in August, Phoenix, Legal and General, Standard Life and Prudential all admitted they might not be able to update older systems that serve swaths of existing customers, meaning they may have to transfer out to access their savings.
Most added that where exit penalties, that can be as much as 20 per cent of the fund, are payable, these will be enforced.
Mr Smeaton said: “There was talk around transitional measures being introduced to allow those individuals who had recently taken benefits, or were intending to do so before 6 April 2015, the same flexibility and freedom of choice that will be available from that date.
“As with all things pension related, it is never simple. While the legislation may facilitate choice, the reality is that constraints on, and by, providers may limit the options.
“Scheme rules, operational systems and procedures, and the impact of other pension proposals in the offing, will all have a bearing on whether individual providers are able to cope with this transitional flexibility.”
James Hay itself, which as a self-invested pension provider is not encumbered with the same legacy issues as some life offices, revealed last week it will be offering both flexible drawdown and uncrystallised lump sums in time for the new freedoms coming into force.
Elsewhere, Mr Smeaton said the move by chancellor George Osborne to remove the 55 per cent ‘death tax’ on pensions looks like it provides “fantastic” tax planning opportunities and a means of preserving wealth way beyond what we could ever have predicted.
“In 2014, the euphoria increased every time the chancellor made a pronouncement on the pension tax regime effective from April 2015. Looking ahead to next year when all new ‘sexy’ pension regime comes into effect we need to acknowledge the fly in the ointment.”
Talk of defined contribution pension pots being used as a ‘bank account’, where individuals can dip into them whenever they want and taking out as much as they choose, further “fuels the premise that many people will simply drain their funds if there is an unforeseen emergency, or a luxury that can’t be resisted,” according to Mr Smeaton.
Most providers operate the payment of income benefits through a payroll system, deducting the appropriate rate of tax before paying the income to the individual, he said.
“Most people wouldn’t expect payroll to make ad-hoc payments of salary as and when the individual wanted an advance, and yet this is exactly what pension providers will have to accommodate from next April.
“To do so, and to satisfy the numerous HMRC reporting requirements, most will have to reconfigure their IT systems.
He added: “Many legacy products and IT systems were never structured to offer such flexibility and the cost/benefit for the provider to reconfigure their system may be such that many may choose, for commercial reasons, not to offer this flexibility.”
donia.o’loughlin@ft.com
