Mike Morrison: Govt call for firms to up their game is ironic

We live in an instantaneous world – if I go on Amazon I can have my purchase with me the next day, banking can be done at the click of a mouse and bills can be paid without even getting up in the morning. With the giant leaps forward in accessing goods and services, it is no surprise that expectations have been high for access to the new pension freedoms. However, instead we hear stories of how the new rules have resulted in delays, and that some providers have chosen not to offer them at all.This is regrettable but not really a surprise.Insurance companies (and I have worked for a number of them) take time to get their systems up and running and indeed it is such a complex change that you would expect nothing else.If we go back to the Treasury’s response to the Freedom and Choice in Pensions consultation, we were told: “A permissive statutory override will be introduced to ensure that all defined contribution schemes are able to offer their members increased flexibility” and that “individuals will also be able to transfer between defined contribution schemes, up to the point of retirement, if their scheme does not offer flexible access”.{desktop}{/desktop}{mobile}{/mobile}The override could have been made mandatory, such that providers would have been forced to amend their rules. Indeed, this has been previously done when there have been major changes to pension legislation.The consultation response continues: “The consultation sought views on whether a statutory override should be introduced to require pension schemes to offer flexibility to their members.“The following themes emerged from respondents: The majority of respondents were in favour of a statutory override being introduced so that an individual is not disadvantaged by existing scheme rules ...“However, there were concerns raised over the costs and administrative burdens that could be placed upon some schemes if offering flexible access were made a mandatory requirement”.Although the majority appeared to want a statutory override, it appears that the needs of the few were more important, as some providers argued that providing full flexibility would mean that schemes would need to offer income drawdown that they might not have done before.This was cited as being difficult and costly for some schemes, particularly those with inflexible legacy systems. In making a decision the response indicated that the effect of a mandatory override would be (to use the word in the report) disproportionate.The suggestion is that as some providers quoted legal and administrative costs they were given a way out – they could offer transfers to schemes that would offer the new rules and in the end the Government took this route instead – allowing schemes to provide flexibility without having to amend their rules.So, as a result we got a bit of a half way house with the choice given by the Government to the providers: “The government plans to introduce a permissive statutory override. This will allow schemes to ignore their scheme rules and follow the tax rules instead.”It is also a little difficult to accept that, by relying on the ability to transfer to providers that do offer the freedoms, many clients were exposed to the early encashment penalties that are often inherent in such providers.Could they not have waived the penalties in return for the saving of not having to change rules and systems?It is also somewhat ironic to see reports that the Government wants providers to “up their game” in helping consumers to take advantage of the pension freedoms.The pension freedoms require a lot of change and it is important to get it right – we are an industry that has moved from some of the legacy systems of the past and many of the leading platforms today are able to react promptly and efficiently.As an industry we will get it right, but a little bit of time might be needed.

Mike Morrison: Govt call for firms to up their game is ironic

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