Pension ‘freedoms’ will be less simple than they appear

Ashley Wassall

Like the figurative frog sitting in slowly heating water and ultimately perishing amid the ebullience of the boiling tempest, financial services has steadily succumbed to it own pernicious threat.

It didn’t start out this way, but slowly, surely and inexorably, a rising tide of complex nomenclature has drowned out plain English and contributed to a yawning rift between the industry and its customers.

Enough with the laboured water-based metaphors: the point is too many in the sector - including those that regulate it as well as operate within it - do not describe products and services in a way consumers will readily understand.

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Clearly, the concern then becomes that this is seen as a deliberate ploy to blind clients with science. A key to rebuilding trust will be to ensure companies are again speaking the same language as those they serve.

Take the new pensions rules. One option under a fully flexible access regime is to take irregular income from your fund using ad hoc lump sums. In the legislation this seemingly simple option involves reams of detail and has been catchily titled the ‘uncrystallised funds pension lump sum’.

Or ‘Uff-pulls’, Uff-plus’, ‘Flumps’, (for Harry Potter fans) ‘Huffle-puffs’. At FTAdviser, we’ve consistently used the ostensibly straightforward phrase ‘ad hoc lump sums’.

Even this has raised problems, as we found when we got into a lengthy debate with one firm due to the fact the new ultra-flexible drawdown option can be used to provide slightly more clumsy irregular lump sums through full withdrawal partial crystallisation.

As we reported recently, this option is being offered by Old Mutual. I suspect others will follow.

To counter this fetish, we in the press, especially my colleagues on consumer-facing titles, often play the role of interpreter and accord much more prosaic terminology to otherwise impenetrable pronouncements.

The problem is, this can do as much harm as good, as in the case of the aforementioned lump sum option which early on became referred to using the shorthand comparison of using your pension fund like a ‘bank account’.

I can see the logic, but the reality is the vast majority of firms were never going to offer such on-demand and instantaneous access. The tax considerations alone make this far more complicated than it might otherwise appear; that most consider it a generally bad idea is by the by.

Actually, as a report in the Sunday Times this week makes clear, it is going to be even more complex still.

Only five of 11 providers spoken to by the paper - Scottish Widows, LV, Royal London, Hargreaves Lansdown and Interactive Investor said they will offer full flexibility over withdrawals, meaning clients can take payments over any timescale they choose.

Some will prescribe when withdrawals can be made, including several suggesting money will be available on a given day of the month, or Legal and General which said it will allow two withdrawals a year.