By Jamie Clark, Business Development Manager, Royal London
Recent articles in the media have raised concerns about the new pension freedoms. One perceived problem is that across the industry, trustees and providers are not necessarily allowing people to take full advantage of the pension freedoms in situ. This is backed up by a recent survey by Sackers that says 94 per cent of schemes surveyed will offer only the madly monikered Uncrystallised Funds Pension Lump Sum (UFPLS) and only 14 per cent will offer flexible access drawdown (FAD).
If people do not want a UFPLS and instead want to treat their pension more like a bank account by using FAD, the chances are that they will have to transfer it to a plan that will allow FAD. The problem is that across the industry, some (especially older) contracts might have valuable safeguarded benefits such as guaranteed annuity rates. In cases like this, advice will be required before any transfer of more than £30,000 can take place; and advice costs money. Some are baulking at the cost of advice. According to an article in the Daily Mail on 10 June, people have to pay up to £1,000 just for advice. What the article did not really cover is the value of the advice in making sure that people know exactly what their options are and, more importantly, what the best option will be for them – something that guidance cannot do. Separate from the cost of advice, across the industry providers might apply an administration charge when people start to take an income from their pension. Charges like this have drawn criticism from the House of Lords.
With all this publicity, it’s likely that our new Pensions Minister will want to address at least some of these issues at some point. We do not believe that the answer lies in further legislation (ergo complexity) to cap charges in the decumulation phase, although this is an option. Artificial controls like this can prevent a competitive market from driving true value for money for consumers. We continue to believe that because of the complexity and risks associated with drawdown, it should be an advised process. Perhaps raising awareness of the true value of advice or creating a regulatory environment that supports mass market value for money individual advice, would better serve consumers going forward.