There is no doubt that pensions providers with large legacy closed books are feeling the pressure to develop more effective lines of communication with these customers before industry developments and consumer expectations mandate it.
There are several developments which will demand that these lines of communication are opened up. Firstly, pension freedoms and choice, inevitably means that greater numbers of legacy customers (or their advisers) will be coming to providers with requests to cash in their legacy pensions with a view to going into drawdown or perhaps keeping their assets uncrystallised and taking out lump sums via uncrystallised fund pension lump sums. Who knows, they may even be asking to cash in their annuity in a year’s time when the secondary annuity market goes live.
Closed-book providers need to be able to offer most of these options today, despite the fact that most legacy policies and the systems that support them were designed for a much simpler world in which the only at-retirement choice was to buy an annuity at the point of retirement.
Sliding an annuity application form in with the ‘wake up pack’ – sent to scheme holders four to six months before policyholders’ stated retirement age – was normally enough to continue retaining their business through into retirement.
But those days are coming to a close rapidly, all you need to do is to read the FCA Policy Statement 16/12 published in the last couple of weeks, along with the even more pointed Thematic Review 16/2 Fair Treatment of Long-standing Customers in Life Insurance Sector, published just a month earlier and promising draft guidance on 3 June.
These documents make it clear that the FCA is encouraging providers to get into proper two-way dialogue with customers with a view to tailoring at-retirement and in-retirement communications to individual requirements and preferences. Disclosure change demands, reflecting pension freedoms and choice, are already in gestation over at Canary Wharf and will be enforced less than a year from now, on 6 April 2017.
There is also a recognition in these documents that the paper-based statutory documentation – wake up packs, statutory money purchase illustrations (SMPIs), and the like – are not doing enough to ensure good outcomes for consumers.
Disclosure Mark II is on its way and the closed-book operations are least prepared for it, if the Thematic Review 16/2 is to be believed.
FCA Policy Statement 16/11 even promotes the use of interactive tools to help stimulate the necessary dialogue and get customers engaged in decision-making, in addition to what is achieved in statutory illustrations, see page 15:
“We agree that tools have the potential to aid consumers’ understanding of their retirement options and expect firms to consider using the tools that best support their customers’ needs. As stated in FCA Consultation Paper 15/30 we regard tools as distinct from illustrations.”
There are multiple issues that the City regulator wants providers to get their head round which are detailed in Thematic Review 16/2:
1. Regular policy review regime to ensure that outcomes stated at outset are still heading for delivery at stated retirement age