Pension firms struggling to deliver annuity change by April
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Suffolk Life marketing director John Moret says pension providers will struggle to update their systems to implement permanent changes to annuity legislation by the April 2011 deadline.
The June Budget scrapped the requirement to annuitise or enter alternatively secured pension at 75, pushing it back immediately to 77 as an interim measure.
The Government is consulting on permanent changes, which would introduce flexible and capped drawdown from April next year.
Money Marketing revealed last week that Legal & General, Prudential and Scottish Widows will not be changing their systems to extend unsecured pension to 77.
But Moret warns that many providers will also struggle to get their systems ready for the permanent changes in April.
He says: “There is a lot of work needed and I think for companies with legacy business in particular there will be some big decisions as to whether they are going to be in a position to deliver this by April 6.
“There have got to be hundreds of thousands of individuals already in unsecured pension who could want to move into flexible drawdown from day one so there is a lot for providers to worry about. They will have four or five months to implement changes and I think the track record suggests many will struggle with that.”
He says Suffolk Life will try to meet the deadline but cannot guarantee this until the final rules are published.
Legal &General admitted last week it would struggle to make the deadline.
An Association of British Insurers spokesman says: “We continue to liaise with the Government to make sure that the reforms are as smooth to implement as possible but it is up to individual companies to ensure their IT systems are able to make the necessary changes.”
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Readers' comments (2)
Julian Stevens | 20 Aug 2010 10:48 am
The other looming spectre is that the new Solvency II requirements, when they take effect, are anticipated to result in insurers reducing their annuity rates by a further 20%, possibly by as much as 30%, which is going to be horrendous.
Any sort of guarantee is going to require so much capital to be set aside to back it that the income purchasing power of pension funds will become even less attractive than it is already.
I had hopes that my idea for an accelerated Income DrawDown plan with an insured element against fund burnout could address this. However, informed opinion suggests that the cost of the insurance element is likely to be such as to largely to neutralise the advantage of maximising the amount of income that can be derived from a given amount of fund (by comparison with a conventional annuity). Given the relatively small likelihood of the guarantee being called upon, you'd think its cost could be fairly low, but apparently not.
One way or another, it seems, private pensions are in terminal decline and unfortunately the new government seems to be doing litle, if anything, to slow the process.
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Anonymous | 20 Aug 2010 1:33 pm
Surely it cannot be beyond them to extend their drawdowns indefinitely? How archaic can their systems be?
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