Life companies have defended their efforts to ensure customers are in the right products, after the regulator flagged concerns they were dragging their heels to switch pre-2012 pension investment strategies.
More than two years since the pension freedoms were introduced, pension customers may still be saving in inappropriate and outdated lifestyling products from some providers who have yet to finish revising their legacy pension schemes.
Historically, many pension lifestyle investment strategies were designed to target an asset mix immediately before a customer’s nominated retirement date to broadly match the tax-free cash and annuity purchase most customers made.
Following the 2015 pension reforms, with fewer customers choosing to buy annuities, the Financial Conduct Authority carried out a study of 13 providers accounting for around nine million customers in lifestyle investment strategies, to investigate what action they had taken to update their lifestyling products to match the pension freedom reforms.
The regulator found for business likely written pre-2012, most providers were still reviewing, or have plans to review, this business over the course of 2017 - a timetable the watchdog said it was "concerned" by.
FTAdviser contacted all the major life offices to find out why progress on ensuring customers are in suitable products is taking so long.
A spokesman for Standard Life said it has reviewed all its lifestyling investment strategies and now has more than 650,000 customers in flexible lifestyle strategies.
"The majority of these customers have been in these solutions since 2015. We also have an ongoing change programme for those who are still in older profiles. We expect to have taken action for the majority of them by the end of this year.”
Scottish Widows stated it has reviewed pensions business pre-2012 and has “changed the glide path on our default funds for those members more than five years from retirement so they are no longer geared towards taking an annuity in retirement."
For members less than five years to retirement, Scottish Widows is "actively engaging" them to help determine whether they should change out of the lifestyle product.
But the provider admitted it still has "small pockets" of pensions pre-2001 which have lifestyling, which it is currently reviewing and plans to take in a similar direction as pre-2012 business.
Aviva changed its lifestyling strategies in 2015, in response to the pension reforms, for all new pension schemes and all auto-enrolment schemes, according to a spokesperson.
"We have made interim changes for the majority of our customers to give them an outcome more suitable for people not intending to purchase annuities and are in the process of writing to other customers (or their adviser) where an interim solution is not available to ask them to consider alternative fund strategies."
Defending the time it has taken for them to carry out this work, Aviva stated: "We believe it could damage people’s retirement prospects if we tried to anticipate what they needed without collecting sufficient evidence.
"We have concentrated on providing alternatives for people who could take their retirement benefits in the next few years and are now developing a longer term strategy for the rest of our customers."
A spokesman for Royal London said it is still undertaking checks to see the extent to which its current default investment strategy aligns with its customers' choices at retirement.
“For our intermediary pension business, all the investment strategies and funds are reviewed quarterly to ensure they continue to meet their objectives," they said.
"The investment objective for business through our consumer business is either to target an annuity plus cash, or cash only, so not so dependent on investment performance, yet checks are still made to ensure that these objectives are reviewed through investment mandates each quarter.”
Zurich said its investment management team carried out a review of the default solutions that applied on all its contract based auto-enrolment schemes to assess whether members are exposed to an appropriate level of risk.
"Where the review indicated that bespoke defaults needed updating, we have been working with advisers and employers to help them adopt investment solutions that are more aligned to how members are taking advantage of the pension freedoms.
"When changes are made they are applied to both newly enrolled members and existing employees too.
"Zurich's business written before 2001 generally did not provide the right to modify investment strategies without policyholder consent. As this is a common issue across the industry we are working with the Association of British Insurers to seek options."
A spokesperson for Prudential called addressing the issue of lifestyling "a considerable undertaking".
“For workplace pensions, Prudential has introduced a new range of lifestyles options suitable for clients following pension freedoms.
A spokesman said: "Some schemes have already adopted the new range of lifestyle options, and we are continuing a programme to contact scheme sponsors to determine the appropriate lifestyle strategy and for this to be rolled out to scheme members.
“In respect of our individual pensions customers, we have rolled out our strategy to more recent customers and will make changes to lifestyle options for long-standing customers later this year."
stephanie.hawthorne@ft.com
