Systems block age 75 change
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Legal & General, Prudential and Scottish Widows are all refusing to change their systems to allow customers to continue in unsecured pension until age 77, claiming the Government’s Budget move was unrealistic.
In the June Budget, Chancellor George Osborne announced that the maximum age individuals have to annuitise or enter alternatively secured pension was to rise immediately from 75 to 77 as an interim measure until annuity reforms are introduced next April.
Aegon, Standard Life and Scottish Life are allowing the extension but customers reaching 75 with L&G, Pru and Scottish Widows will have to annuitise or transfer to another provider before 75 to remain in USP. None of the three providers offer Asp.
Aviva customers with the Norwich Union income drawdown product will not be able to continue in USP but Sipp customers do have this flexibility as system triggers can be overridden manually.
Axa Elevate PIA and Winterthur customers are unable to take income beyond 75 but can remain in USP, although those in the family Suntrust can receive income.
L&G head of savings technical Colin Batchelor says: “It is absolutely impossible to change our systems, contract terms and products just like that. Plus we need to weigh it up with the fact that this change will probably only affect a small number of people. We are focusing on the changes taking place next April, although that is going to be difficult enough.”
A Scottish Widows spokeswoman says: “We are not making the interim change but will have the changes in place for next April. It takes time to change the systems and we did not get a lot of notice.”
A Prudential spokesman says: “We are waiting for final legislation to be passed before deciding to make any changes to our contracts but will not be implementing the interim changes.”
Syndaxi Chartered Financial Planners managing director Rob Reid says: “These systems are archaic and were badly designed. The FSA needs to get involved as you have to look at it from the customer’s point of view and this is not treating customers fairly.”
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Readers' comments (24)
Jack of all trades | 12 Aug 2010 9:28 am
So life offices don't want to change the way they operate, no suprise there then.
I may be wrong but isn't "inadequate systems and controls" a frequent reason used by the FSA to fine regulated firms?
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Chris Boylan | 12 Aug 2010 9:30 am
As I understand it, USP may now continue to age 77 but the right to pension commencement lump sum (previously known as tax-free cash) is lost if not taken before age 75. What is the tax situation in USP on death between age 75 and age 77? What a mess! Chris Boylan
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PensionMan | 12 Aug 2010 9:37 am
Although I sympathise with the life offices we have had to change our systems and processes - its part of the joy of pensions!
What with the farce that was anti-forestalling and the constant changes in pensions legislation I long for the time where we can go for a substantial period of time with no tinkering with pensions rules. Even if its only for one year!
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Mr Old Fashioned | 12 Aug 2010 9:38 am
This is simply a matter of changing their IT development schedule in order to change their systems to reflect the new rules. How long to you think it takes to change the routine in their system that calculates the 75th birthdate so that it calculates the 77th?
What they are really saying is that they'd rather disadvantage the relatively few clients who will reach age 75 in the next couple of years than make the effort to see that they are not disadvantaged. They are in the minority, and a small one at that.
Small minorities tend not to matter in business, in my experience, particulary to big companies.
IFAs will have to advise the clients who are potentially affected to transfer elsewhere, assuming that there is an elsewhere to go to. We would have to make a charge for that advice.
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Andy Newman | 12 Aug 2010 10:08 am
The IT systems in use at life companies are of a very different scale, and might be described as industrial strength mainframes. This sort of IT platform collects and pays out money on a vast scale every day. You simply can't drop in a change like that without testing it, to do so is a bit like trying to change the spark plug on an engine whilst it is going at full speed.
The government's own record on making changes to big IT platorms is absolutley dreadful and they allow themselves years to make changes, you only have to look at passport fiasco, national heath service datbase and DSS rebate cock ups.
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Anonymous | 12 Aug 2010 10:11 am
Unfortunately it's rarely as simple as flicking a switch and changing systems. Yes, lots of life offices systems are archaic and old fashioned, most are trying to put this right while dealing with many other changes - all of which involve significant costs.
I sympathise with people who want to take advantage of this rule change. However, it's simply shows that government has absolutely no idea of the cost and timescales involved in making these changes.
We all know how tricky things are and how important it is to keep costs down and at least try to protect the jobs of outr staff. I'm sure most life offices are in the same boat. If they make these costly changes to benefit a few customers then they may have to cut costs elsewhere. It's a sad fact of the position we're all in just now.
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Kevin smith | 12 Aug 2010 10:14 am
Can you blame insurance companies not doing it on a whim? Remember Pensions Term Assurance changes that they all did? Millions were spent and wasted when the rules were changed again.
Until its firmly in the statute why change anything?
Rember also some of the other systems were written in the 80's and will cost millions again to amend them. Life companies don't want to loose people to people who can do these things too so they have to weight up the choices.
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Anonymous | 12 Aug 2010 10:58 am
Classic winging from uninformed IFAs blaming Life Companies. The Governement announced the change at a day's notice and expect everyone to jump for a something which only lasts a few months and affects a tiny minority of clients. And is essentially pointless.
If the civil servants actually asked the life companies how hard it was to make these changes, no-one in thier right mind would have agreed to them.
For once they should realise they have made a monumentous mistake and reverse it, clearing the way for the proper legislation to take effect next year.
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Julian Stevens | 12 Aug 2010 11:21 am
The solution to the complicated mess of retirement income options is simple and would be simple to implement.
I suspect the main problem here is Mark Hoban.
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USP Guy | 12 Aug 2010 12:22 pm
The whole system stinks
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