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Spelling out

The Government is being called on to publish the full pension simplification rules and end the uncertainty that is stifling planning by the industry, says Xansa head of financial services James Doyle.

50 per cent of the industry have not yet started or are still reviewing their business strategy for A-Day.

Only 20 per cent view pension simplification as an opportunity secure additional revenue.

Nearly 80 per cent view their A-Day programme of work as medium or high risk.

More than 80 per cent are worried about skills gaps in their firms.

As the debris of the general election clears away, it is time to turn again to the serious business that is government.

One of the issues which did not get much of an airing during the campaign was pensions, yet the future of long-term savings in this country is of vital importance. The Government is committed to getting more people to put aside money for their retirement and is convinced that simplifying the system is a big step forward. The problem is that the process is proving anything but simple for providers.

Outsourcing and technology company Xansa is supporting three of the top five providers as they prepare for simplification. We decided to look at how the rest of the industry is coping. Working with independent consultancy Rawlings, we interviewed pension simplification programme directors in a representative sample of 27 pension providers about their preparations for A-Day on April 6, 2006.

We found widespread concern about the implications of regulations that the Inland Revenue has yet to publish. As one respondent puts it: “We are still reliant on missing information without any contingency over the timescale.”

It is not surprising that half the people inter- viewed said their company is still on the starting blocks in preparing to implement the new rules. This is worrying when you consider that virtually all respondents admit this project will involve more work than Y2K and that simplification is, in the words of one interviewee, “the biggest and most complex task we have undertaken”.

It was because of these findings that we have called for a meeting with the pensions minister and the Inland Revenue, facilitated by the Investment and Life Assurance Group, to make sure the Government can confirm a date by which all regulations will be published. Only then can the industry understand exactly what it is working towards. Making the path to simplification a smooth one should be a primary aim for the minister and his team. Let us hope they rise to the challenge.

But our research shows that there are other strains on the industry. Many respondents expressed concern about the skill gaps in their companies. They feel they lack specialists who can translate the “civil service speak” of the regulations into business and technology language.

Several interviewees admit they have taken employees off other projects to meet the A-Day deadline and other vital work is not being done. In some cases, they are extremely angry about this, with one person commenting that simplification constrains the ability to invest in “other key opportunities which could potentially be more profitable”.

Many interviewees feel the strains could come to a crunch nearer to A-Day when, as one respondent puts it: “Requests for resource from other change programmes may stretch the availability of our internal resources and lead to additional exp- enditure on external resources.” It is clear that some firms will need external help and that they should consider their options now rather than at the 11th hour, when they will find fewer external resources available at distinctly higher costs.

The final principal fear of the people we spoke to is of pension churn. The debate about the impact of churn has raged for months and more than 60 per cent of the market fears its existing book could become another company’s opportunity.

One participant said: “We must make sure we take the role of predator, not prey, in the rebroking of existing business.” Another player is worried that bigger players with “more financial muscle and higher marketing budgets” could use simplification as an opportunity to barge them aside.

Some interviewees, mainly working for those bigger players, take a more positive view on simplification. Several of them mention that they are indeed revamping their product strategies and there will be a big push on Sipps, which will be commoditised and positioned as a mainstream product.

Optimists believe simplification will give them an opportunity to re-engage the public and recontact existing customers about retirement planning. This is certainly what the Government hopes will happen. We need to rekindle a long-term savings culture in Britain and, if simplification is one of the ways to do that, the industry should embrace it with enthusiasm. The Government needs to issue all the necessary regulations so the industry can be prepared for A-Day and do a good job of getting out into the market and talking to consumers.

Companies need to plan their resources carefully over the next few months and conduct rigorous programme audits to identify and manage the risks. Working on meeting the A-Day deadline should not blind them to opportunities they need to act on.

To become the predator and not the prey, they should make sure they have enough resources to tackle simplification without being swamped and left vulnerable to churn.

It is going to be an interesting 12 months as the industry strains to meet the A-Day deadline but the prize of a re-engaged public rediscovering the savings habit is worth striving for.


Out of context

“I have had a coffee and am in rant mode.”- Lifesearch senior technical adviser Kevin Carr.

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