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Platforms still falling short on decumulation functionality

Platforms still falling short on decumulation functionality

Since pension freedoms were introduced three years ago, a total of £21.7bn has been withdrawn from pensions, according to HM Revenue & Customs figures. 

The number of payments increased from 296,000 in the second quarter of 2016 (when reporting became compulsory), to 585,000 in the third quarter of 2018. 

However, although demand for pension flexibility has increased, advised platforms have not embraced the trend by creating functionality that offers people a full range of options at retirement or making the process efficient for advisers.

In fact, the Financial Conduct Authority (FCA) stated in its Retirement Outcomes Review Final Report in June that product innovation has been limited, despite expectations that new products would be developed for mass market consumers combining drawdown flexibility with guaranteed income. 

In general, mainstream platforms remain focused on accumulating assets, rather than on providing choice in the decumulation phase.

Advised clients have fared slightly better than direct consumers, with some specialist at-retirement providers offering greater flexibility within their pension range, but within mainstream platforms, significant gaps in pension withdrawal functionality remain. 

Of the 21 advised platforms included in the lang cat Platform Directory, two currently only offer four of 11 pensions functions listed, which include capped drawdown transfer in, guaranteed income products, pensions technical support and annuities.

Advisers managing withdrawals from retirement savings will find that even fairly basic capabilities such as uncrystallised fund pension lump sum (UFPLS) and natural income options are missing from some platforms, while functions such as single, consolidated income payments and tax-efficient withdrawal tools are also conspicuously absent from a number of platforms.

Most offer six or seven of the listed functions and one offers 10, but no single platform offers the full range. 

Last March, the Department for Work and Pensions acknowledged that “new, innovative retirement solutions are needed that will meet consumers’ needs”.

However, it considered the post-freedom pension market as still evolving, and that product innovation would progress as the reforms become more established.

The FCA shared this sentiment in its Retirement Outcomes Review Report, saying it wants the market to have time to develop, and therefore it will take no action on product innovation at this stage. 

This is frustrating, though, when recognising that the demand and activity is already there.

According to the Retirement Outcome Review Report, customers are already performing a diverse range of functions in this post-freedom market.

Over half (54 per cent) of those who have accessed pension pots for the first time between October 2016 and September 2017 withdrew these pots completely, with a further third (30 per cent) opting for drawdown, 13 per cent chose annuities and the remainder (3 per cent) uncrystallised fund pension lump sum (UFPLS).

Although all advised platforms offer drawdown, two do not offer UFPLS and none offer annuities. In addition, previous lang cat research has found that not all platforms can manage the whole process of pension withdrawals online, with some requiring paper applications or a wet client signature.