Advisers have slammed archaic pension funds unable to make standard transactions because a fraction of their client's pension portfolio is in a gated fund.
The suspension of a string of property funds last month (March) — and providers’ inability to deal with the fallout — has meant advisers have been forced to “jump through hoops” to provide a typical service to their clients.
Shelley McCarthy, managing director and financial planner at Informed Choice, told FTAdviser that because 5 per cent of a client’s pension portfolio was locked in a property fund, she was initially told by Royal London she was unable to withdraw any of the cash.
Although the pension provider later arrived at a solution — which involved transferring the other 95 per cent of the fund into another portfolio — Ms McCarthy described it as a “clunky and convoluted” nightmare.
She said: “It’s been a nightmare trying to sort it all out, and it’s not a straightforward solution. It’s still massively complicated.
“We have had more paperwork to fill in and more explaining to do in an already stressful situation. We have to explain why she is now unable to do the same thing she’s been able to do for the last few years.”
Ms McCarthy said her advice firm had provided warnings to clients that property funds could be suspended but, under the impression it would not affect the entire pension, it did not warn against them in this context.
She said: “It seems ridiculous because it's at key times like this that clients are going to need income, and when there is a crisis it is more likely that funds have been suspended.”
A Royal London spokesperson said Ms McCarthy’s client was part of a small percentage of drawdown customers whose ability to take income was affected by the decision to suspend the property fund.
The spokesperson added: “However, we worked closely with the adviser to find a solution to the problem as quickly as possible and the customer is now able to take their income as needed.”
This appeared to be a wider problem among “old-style pensions” which had been created before pension freedoms were introduced in 2015, Ms McCarthy said, adding that despite the rules bringing extra flexibility most plans had “just been updated” rather than “fully refreshed”.
Earlier this month, Aviva customers complained to the Financial Times that the pensions provider had made it difficult to make changes to their pension portfolios following the suspension of its own property fund, but Aviva said the vast majority of customers were not affected.
Ivor Harper, adviser at Park Financial, said the situation highlighted an old “major weakness” in some pension providers' drawdown proposition that, when decumulating, any payment was taken proportionally across all the investments, rather than a withdrawal from one specific fund.
He said: “This thinking is behind the curve and is a significant failing for clients and advisers who wish to hold a number of different asset classes within the pension.
“Imagine a portfolio comprised of 50 per cent bonds and 50 per cent equities - would you want 50 per cent of your income to be from equities if equity markets were on their knees?”
Mr Harper urged providers to “fix the problem” to stop advisers having to “jump through these hoops”.
Paul Stocks, financial services director at Dobson & Hodge, agreed, saying it often felt providers “put the practicalities of client needs too far down their list of priorities”.
He said this was exacerbated by legacy systems, client books being bought and insufficient investment to meet the demands of clients.
Mr Stocks added: “It is disappointing to have to say it but on many occasions we now seem to manage achieving client objectives not because of providers, but despite them.”
imogen.tew@ft.com
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