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07

Pensions freedom for all?

Open-access content Thursday 25th June 2015 — updated 4.50pm, Tuesday 14th April 2020
2

Since 6 April this year, providers of money purchase arrangements in the UK have been able to offer much greater flexibility in how benefits can be taken. But how has the industry reacted?

The Association of British Insurers claims that the vast majority of customers have been able to access their pension pots (News, 11 June). My own research suggests otherwise, with many firms not prepared to offer uncrystallised funds pension lump sums (UFPLS). 

A typical reaction has been: "No, we are not providing that flexibility within your existing contract, as we are not required to do so by legislation. But if you would like to transfer to our more expensive plan...". The personal money pages in the press have been full of letters from people complaining they are being denied access to the new freedoms, or that they come only at a price.

Some insurers and trustees may be concerned about potential lawsuits from customers mis-spending their pensions pots, and there may be a problem for trustees of occupational money purchase schemes, but it is not the industry's role to frustrate the wishes of parliament. 

The figures recently quoted by the chancellor of 60,000 people withdrawing £1bn suggests that either pensioners are exercising their new freedom sensibly, or are being prevented from doing so. Those figures are unlikely to result in much of an increase in Lamborghini sales.

I would urge actuaries to encourage the industry to make the new flexibility available to all pensions customers at a reasonable cost. These days, the cost of making a payment, recording it and advising HMRC should be minimal. It is unacceptable to force customers to switch into significantly more expensive products in order to access new freedoms.

The new pensions minister is reluctant to take action just yet, but unless the industry shows willingness, legislation may be the only course, unless naming and shaming has any effect. I will refrain from doing so here myself, but would mention one notable exception. Equitable Life, much maligned in the past, responded to me before the April date with all necessary details and forms for me to complete for taking flexible benefits. Much of the rest of the industry has some catching up to do, but is the new regime really that difficult to administer? Should it be regarded, as the Association of Consulting Actuaries suggests, as one of the industry's "biggest challenges"?


Tim Sheldon  18 June

This article appeared in our July 2015 issue of The Actuary.
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