The rapid pace of pension reform made Friends Life’s failure to offer customers access to the new freedoms inevitable, say advisers.
Last week, Friends Life wrote to 1,300 customers apologising for its inability to facilitate flexi-access drawdown and uncrystallised funds pension lump sums. It said some of its older products had “complex features” that required manual work.
Friends Life said it would offer the full flexibilities “in due course” but it was unable to provide a specific timeframe. Aviva, which recently acquired Friends Life, has confirmed its customers are not affected by the problem.
Prime minister David Cameron has also waded in to the debate, telling journalists at the G7 summit in Germany he wants an investigation into the issue. “We need to look carefully at what’s happening. I can see that my new pensions minister, Ros Altmann, is quite rightly already out of the traps and talking about this.
“The aim of the reforms is to give people more control of their money and we need great transparency in our pensions industry, as we’ve said before. So we’ll keep a careful eye
But advisers say providers’ inability or unwillingness to implement the reforms is inevitable, given the short lead-in time and legacy firms’ priorities.
Anand Associates managing director Bhupinder Anand says: “Good on them. The Government was completely wrong to do this without consultation and expect providers to be ready. If I was a company, I’d say let someone else take it on. Why should any company incur an expense just because the Government wants it to? It’s a totally unnecessary cost.
“Why does it need to offer the flexibilities and spend millions developing systems when it is not compelled to? It’s a double loss – of money under management and in the administrative cost of processing.”
Dobson and Hodge director Paul Stocks says: “Look at some of the other legacy providers – if these firms are trying to drive down costs, why would they spend money on something that’s not in their best interest? If a company’s not looking for business, what’s its motivation to invest loads into administration systems?”
But Stocks thinks keeping track of firms’ ability to offer full flexibility will become more important for advisers. He says: “As advisers, you’re battling against administrative hurdles. One of the first questions we ask now is ‘What can you facilitate?’
“This sort of stuff will be a much better differentiator than things like charges.”
A Friends Life spokeswoman confirms that some policies may have exit fees based on the number of years left before an individual’s stated retirement age.
Page Russell director Tim Page says it does not matter if firms choose not to offer fully flexible access as long as there are no exit fees. He says: “The real issue is: are they going to put barriers in the way of moving to other providers?”