Providers blasted for ‘shambolic’ client drawdown deals

Providers blasted for ‘shambolic’ client drawdown deals

Advisers have criticised life insurers’ attitude to legacy drawdown contracts, saying their refusal to update their systems to accommodate certain policies was "shambolic".

The problem stems from legacy drawdown plans, which according to their trust deeds finish when the policyholder turns 75.

This is because prior to 2011 the law required people to buy an annuity at that age.

Advisers argue old life companies have refused to update their systems to allow contracts to continue past that age, which incurred extra cost and more work from having to switch clients into newer policies.

Several insurers told FTAdviser they would allow later life drawdown on their new policies but not their legacy ones.

Standard Life, for instance, said: “Less than 2 per cent of our drawdown customers are in legacy drawdown products that do not allow income after 75. 

“However, those in this group can transfer to one of our modern drawdown products that enable them to take income after 75 and there is no charge for transferring.”

The firms do not levy any form of exit fee or transfer charge on those pension switches but some, like Zurich, Prudential and Scottish Widows will not accept business into modern drawdown without advice.

Advisers say this means the switch incurs extra work for them and an advice charge for their customers, which could easily be avoided.

Robert Forbes, chartered financial planner at Stadden Forbes, said: “It is pretty shambolic that the IT systems don’t allow for drawdown and essentially life companies will say that it is a contract issue and they would have to change the pension contract. 

“But it is all nonsense. If they were minded to they could change.”

Alistair Cunningham, financial planning director at Wingate Financial Planning, pointed to a further statutory override following the pension freedom reforms, which means the law allows for flexi-access drawdown even if the pension scheme has not been updated.

It is a systems issue, he said. Some firms may not choose to update their systems while others may be unable to do so.

He said: “It is worse when someone dies and they refuse to offer anything other than a lump sum, where invariably an inherited pension, allowed for in law, would be better for the beneficiary.”

A spokesman for Prudential said the provider had made the decision to only allow drawdown beyond age 75 on its up to date contract in 2011. Its two previous contracts remained unchanged.

A spokesman for Aviva, which has acquired a number of legacy books over the years, said it had kept the contracts as they were upon takeover, meaning some offer drawdown beyond age 75, while others do not.

The problem does not necessarily ring true for self-invested personal pension (Sipp) providers, the majority of which would have “updated their scheme rules and systems to allow clients and advisers to take advantage of the new rules”, said Greg Kingston, group communications director at Suffolk Life, which is part of Curtis Banks.