Reports suggest there is huge pent-up demand from people waiting to dip into their pension at the beginning of April. So much so that I am concerned that the industry has not done a very good job of managing expectations.
We know that not every company will offer all the flexibility that is technically possible after pension freedom day. This will force investors to transfer their money – and this is where I fear chaos and mayhem will reign.
One leading pension firm tells me that someone who wants his money should be able to get it in two to four weeks. But if a transfer is involved, they fear the transfer itself could take from four to eight weeks.
A government paper on the Processes and Costs of Transferring a Pension Scheme published in 2012 showed defined contribution transfers in various group schemes were taking eight to nine days on average using the options system.
Using an IFA tended to help the process because the discharge form was more likely to be completely correctly the first time.
What the report also showed was that the process does not need to be expensive or time-consuming. The average time spent by the ceding pension was an hour and 45 minutes and the average marginal cost for a group personal pension-to-group personal pension transfer was just under £50 for the ceding pension and £55 for the receiving one.
I fear that investors could now find their transfers taking much longer. Besides the likelihood of incorrectly filed paperwork there is the probability that firms will not have enough staff in place – particularly those that are not offering the full range of new flexibility.
We have seen the chaos that has resulted when a decent savings account or cash Isa has been launched. I suspect that most pension firms will never have seen anything like this before and will be ill-prepared to cope.
Prepare for a summer of outrage from investors who, when they have to wait months for their money, will feel they are being stitched up by their pension company one last time.
It is time for total recall
Over recent months we have seen pension companies hauled over the coals for failing to ask their customers detailed questions about their health and lifestyles before selling them an annuity.
As a result many people who should have been offered an impaired life annuity were sold an ordinary one instead.
When investors are allowed to swap their annuities for cash let us watch while those same companies suddenly remember to ask all of those questions – and no doubt dig deeply into the details should they have any concerns.
Personally, I think those providers who were forgetful when selling annuities should not now be allowed to ask lifestyle questions when buying them back from those same customers.
Estimates from Fidelity already suggest people are not going to get great value if they sell back.