Platforms  

SNAPSHOT: Pension flexibility creates challenges

Platforms could arguably be the biggest winners from the last two Budget statements.

But although changes around pensions are creating significant opportunities for platforms, they have a lot of work to do to make sure they get it right and keep clients – and their advisers – happy.

Few predicted the pension freedoms promised in the 2014 Budget or their repercussions within the financial services industry as a whole.

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However, a year on and platforms have emerged as one of the main beneficiaries of the regulatory changes. Platform flows rose to record highs in the fourth quarter of 2014, largely thanks to sales of pension products, according to the Fundscape Platform Report.

With the promise of being able to access their money more freely from this month, it seems that more people are now happier to save for their retirement through pension products.

And with £343.7bn of investments held on platforms, according to the report, the facilities have a central role to play in providing individuals and their advisers with easy, flexible, low-cost access to investments and the administration of portfolios.

But the picture isn’t completely rosy for platforms. The timescale between the announcement of the pension freedoms in March 2014 and their introduction in April 2015 has left a relatively short period to implement the flexibility, creating challenges for all. These include ensuring systems can cope with increased demand for pension drawdowns – potentially from small pots – than was previously the norm and from advised as well as non-advised clients.

Meanwhile, many platforms will be looking at implementing the Isa changes announced in the 2015 Budget, which are due to be introduced this autumn. This flexibility gives savers the ability to withdraw investments and repay in the same tax year without any loss of tax-free status, adding to complexity and cost for platforms catering for such a scenario.

Alongside changes to the flexibility of wrap products, the deadline is also looming to convert all share classes from bundled to unbundled ahead of the sunset clause in April next year.

Recent research by Investment Adviser has found that platform assets held in clean share classes has leapt from roughly 50 per cent in May 2014 to around 75 per cent. While this is positive news, it still leaves a major task for those platforms yet to fully make the transition.

No one knows for sure what the level of activity will be when the pension changes come into force. Many are predicting a spike in demand from individuals wanting to get cash out of their pensions, due to thousands of people recently eligible to draw on their pensions that have delayed doing so.

Unlike the Northern Rock situation seven years ago, we’re not going to see panic queuing in the streets. But given the hype around pension freedoms, customers are likely to have high expectations of how quickly they will be able to get their money out.