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Off focus: Platforms fall short on paying income post-pension freedoms

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Platforms are failing advisers and clients by taking their focus off “vital” income payments in the wake of the pension freedoms.

Most platform providers approached by Money Marketing still do not offer consolidated payments eighteen months after the reforms launched, drastically increasing the complexity of savers’ income in retirement.

Experts say firms must make income payments a priority as customers demand slicker and more flexible options.

Platform consultancy The Lang Cat warns functionality is one of the last remaining areas platforms can differentiate themselves and provider risk losing out without rapid upgrades.

Falling short

In a report by The Lang Cat published earlier this year, only Zurich, Elevate and Transact out of 14 platforms analysed, appear to offer a single, consolidated income from across all wrappers – a “fundamental” ability, according to the firm.

The Lang Cat consulting director Mike Barrett says postpension freedoms, customers are most focused on being tax-efficient and likewise advisers’ top priority has become managing income.

He says: “While this scenario is not for all type of clients, it is for many. For platforms it is an hang up to have to work on their internal process and update them but it is really important.

“Many of these platforms are also currently replatforming and merging, so they are facing other challenges and they might think they need to give priority to that.”

Threesixty managing director Phil Young says not being able to consolidate payment into one and set the preferred date of payment seems “anachronistic” given the advances in financial services technology and the growing importance of managing cashflow.

He says: “Given the increased flexibility of pension freedoms, a greater emphasis on managing cashflow predictably and sustainably in retirement, and the greater propensity for people to semi-retire rather than completely stop working, it seems odd that there seems to have been less emphasis on getting money off than managing money on platform to date.”

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Most of platforms can offer income payments on a monthly, quarterly, or half yearly basis, but the approach to dates remain “too patchy”, says Young.

He adds: “The ability to manage income payments is probably the biggest concern given importance of creating a retirement plan that balances income against expenditure.

“A degree of flexibility is required to allow investors to take payments at the frequency they want. Some might be happy with an annual payment but many will want monthly payments to replicate their working income and pay off regular bills.”

21st century issues

Finalytiq founder and director Abraham Okusanya says making income payments more efficient is “hugely important” but platforms are falling down.

For instance, he notes many platforms are not geared up to pay out natural income and some do not even have cash accounts.

Okusanya adds: “Another issue is when you need to sell down units, some platforms don’t have that [option]. You would have to go in and physically sell down income, that is not efficient and very effective. Also there is an issue in the refunding functionality, not all firms have this. It should only take a few days but and it takes weeks or months if you don’t.”

Young adds the abilty to pre-fund remains “hit and miss” amongst platforms, and seems a “retrograde” problem given it has been possible to pre-fund to buy investments for years.

Okusanya adds income payment process remain heavily paper intensive.

He says: “Some platforms send a lot of papers when a sale is made, unless clients opt for online. From a client point of view that doesn’t sound like an experience you’d expect in the 21st century. It’d be also good if they could specify the fund of the portfolio where the income comes from.”

Most of the platform approached by Money Marketing, including AJ Bell, Aviva, Aegon and FundsNetwork do not offer a consolidated payment, but deliver income payments for different individual products.

A degree of flexibility is required to allow investors to take payments at the frequency they want

AJ Bell marketing director Billy Mackay says different wrappers are used for different client requirements. This means it is important for advisers and clients to be able to manage these payments independently, given the varying tax treatments of payments.

As for operations, gbi2 managing director Graham Bentley says an “obvious issue” is legacy IT systems.

He says: “Just look at what it is costing Old Mutual Wealth to migrate to IFDS. Fund groups’ distribution dates obviously vary so a platform needs to fund some of the income payments while they wait to receive them – some don’t because they didn’t see it as hugely important.

“But post retirement freedoms, it’s vital now.”

The Lang Cat says although being restricted to three or four payment dates that a platform systems can pay out is not “a disaster”, it is extremely useful to be able to align accurately to clients’ income needs.

Aviva also does not offer consolidated payments. Senior advised platform product propositions manger Julian Aimes says: “On the new adviser platform we will be enhancing drawdown payments to accommodate payments out on any business day in the month, rather than the four set dates in the month which we have today.”

FundsNetwork will also be introducing a series of consolidated payment options following the implementation of its new platform technology.

Pilot Financial Planning managing director Ian Thomas says: “Platforms come and see our processes and what needs to be designed around the client and then adapt that to their own processes.

“People should see investments in one place. Many platforms are still falling short on that.”

Adviser view

Yellowtail Financial Planning managing director Dennis Hall says:

Platforms we use have been improving in this area but there is still a way to go. Providers know what the rules are and so they have to be prepared.

But the processes for income payment are not as automated as you would like it. Different funds have different dealing so there is still a lot of manual processes.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. While it may be relevant on only some people, it’s important to remember that there can be problems caused by making regular payments to clients. For benefits and similar kinds of assessed areas, such as social care charging or disabled facilities grants, capital and income can have very different effects. Regular payments of capital will generally be treated as if they were income. While this doesn’t affect the tax position it will affect the benefits calculation, generally for the worse. Administrative or customer convenience may come at a price.

  2. I think the importance of making consolidated payments has been hugely overstated here. We use Transact mainly so no problems in that regard, but we would rarely get a client to have their income payments ‘wrapped up’ so to speak and paid out together. That surely can’t be very good financial planning?
    I think Abraham has nailed the point more accurately – it’s the regularity of payments, especially from taxed sources such as pensions, and the functionality that are far more important. To only have payroll once or twice a month (I can think of a handful of platforms this applies to) is simply not good enough, and neither is taking withdrawals proportionately across funds because there are no other options.

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