Talk of an A-Day meltdown, with providers struggling to cope with the new rules and buckling under increased volumes, proved to be somewhat overhyped.
Some players were clearly better prepared for A-Day than others, as is evident in their company results. There were plenty of reports of sluggish service from IFAs but not the barrage many had expected.
Vast amounts of pension business switched between providers due to A-Day, borne out by the buoyant double-digit first-half new business figures of many life offices.
Several firms, particularly those that did not fare so well, bemoaned the epidemic level of churning in pensions, driven by high initial commission, and criticised rivals for buying unsustainable business.
FSA chairman Callum McCarthy breathed new life into the churning debate by launching a stinging attack on the pension industry. He said the current remuneration system is failing IFAs, providers and customers and needs to be addressed urgently. McCarthy stressed remuneration as a key priority of the FSA’s retail distribution review.
The U-turn on residential property on self-invested personal pensions in the 2005 pre-Budget report failed to dampen enthusiasm for the product. Association of British Insurers’ figures show its members took in 2.5bn in the first half. AJ Bell is taking a staggering 120m a month and commentators say Sipps are on course to be a 9bn a year industry.
There were a number of interesting product launches in the annuity market such as AIG’s Living Time and Aegon’s Five for Life targeted at people who do not want an annuity but are not prepared to take the risk of income drawdown.
This brings us to forced annuitisation at 75 and alternatively secured pensions. Many people will remember 2006 for the Asp debacle. As soon as the industry got excited about the product, the Government started to cry foul play and stated that Asps were only ever introduced for people with religious objections to annuities.
This ignored the fact that the Government could not enshrine these restrictions in law for fear of religious discrimination against non-Plymouth Brethren types. Its promises to crack down on “wilful abuse” of Asps to avoid paying inheritance tax were duly met in this year’s pre-Budget report.
This imposed a whopping 82 per cent spoiler tax charge on death benefits. Some commentators accused the Government of effectively killing off Asps while others were thankful that there is still an alternative to forced annuitisation at 75 which could be a viable option for some people. There is no doubt, however, that the industry will not pay any notice to the Government’s “religious” restrictions.
Meanwhile, the Government further blotted its pension copybook by continuing to treat appallingly the 125,000 pensioners who lost some or all of their final-salary schmes. Despite a Parliamentary Ombudsman report finding it guilty of sending misleading leaflets to the pensioners, the Government refused to compensate the victims. It will defend itself in the High Court next February.