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Systems block age 75 change


Legal & General, Prudential and Scottish Widows are all refusing to change their systems to allow customers to continue in unsecured pension until age 77, claiming the Government’s Budget move was unrealistic.

In the June Budget, Chancellor George Osborne announced that the maximum age individuals have to annuitise or enter alternatively secured pension was to rise immediately from 75 to 77 as an interim measure until annuity reforms are introduced next April.

Aegon, Standard Life and Scottish Life are allowing the extension but customers reaching 75 with L&G, Pru and Scottish Widows will have to annuitise or transfer to another provider before 75 to remain in USP. None of the three providers offer Asp.

Aviva customers with the Norwich Union income drawdown product will not be able to continue in USP but Sipp customers do have this flexibility as system triggers can be overridden manually.

Axa Elevate PIA and Winterthur customers are unable to take income beyond 75 but can remain in USP, although those in the family Suntrust can receive income.

L&G head of savings technical Colin Batchelor says: “It is absolutely impossible to change our systems, contract terms and products just like that. Plus we need to weigh it up with the fact that this change will probably only affect a small number of people. We are focusing on the changes taking place next April, although that is going to be difficult enough.”

A Scottish Widows spokeswoman says: “We are not making the interim change but will have the changes in place for next April. It takes time to change the systems and we did not get a lot of notice.”

A Prudential spokesman says: “We are waiting for final legislation to be passed before deciding to make any changes to our contracts but will not be implementing the interim changes.”

Syndaxi Chartered Financial Planners managing director Rob Reid says: “These systems are archaic and were badly designed. The FSA needs to get involved as you have to look at it from the customer’s point of view and this is not treating customers fairly.”


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There are 26 comments at the moment, we would love to hear your opinion too.

  1. Jack of all trades 12th August 2010 at 9:28 am

    So life offices don’t want to change the way they operate, no suprise there then.

    I may be wrong but isn’t “inadequate systems and controls” a frequent reason used by the FSA to fine regulated firms?

  2. As I understand it, USP may now continue to age 77 but the right to pension commencement lump sum (previously known as tax-free cash) is lost if not taken before age 75. What is the tax situation in USP on death between age 75 and age 77? What a mess! Chris Boylan

  3. Although I sympathise with the life offices we have had to change our systems and processes – its part of the joy of pensions!

    What with the farce that was anti-forestalling and the constant changes in pensions legislation I long for the time where we can go for a substantial period of time with no tinkering with pensions rules. Even if its only for one year!

  4. Mr Old Fashioned 12th August 2010 at 9:38 am

    This is simply a matter of changing their IT development schedule in order to change their systems to reflect the new rules. How long to you think it takes to change the routine in their system that calculates the 75th birthdate so that it calculates the 77th?

    What they are really saying is that they’d rather disadvantage the relatively few clients who will reach age 75 in the next couple of years than make the effort to see that they are not disadvantaged. They are in the minority, and a small one at that.

    Small minorities tend not to matter in business, in my experience, particulary to big companies.

    IFAs will have to advise the clients who are potentially affected to transfer elsewhere, assuming that there is an elsewhere to go to. We would have to make a charge for that advice.

  5. The IT systems in use at life companies are of a very different scale, and might be described as industrial strength mainframes. This sort of IT platform collects and pays out money on a vast scale every day. You simply can’t drop in a change like that without testing it, to do so is a bit like trying to change the spark plug on an engine whilst it is going at full speed.

    The government’s own record on making changes to big IT platorms is absolutley dreadful and they allow themselves years to make changes, you only have to look at passport fiasco, national heath service datbase and DSS rebate cock ups.

  6. Unfortunately it’s rarely as simple as flicking a switch and changing systems. Yes, lots of life offices systems are archaic and old fashioned, most are trying to put this right while dealing with many other changes – all of which involve significant costs.

    I sympathise with people who want to take advantage of this rule change. However, it’s simply shows that government has absolutely no idea of the cost and timescales involved in making these changes.

    We all know how tricky things are and how important it is to keep costs down and at least try to protect the jobs of outr staff. I’m sure most life offices are in the same boat. If they make these costly changes to benefit a few customers then they may have to cut costs elsewhere. It’s a sad fact of the position we’re all in just now.

  7. Can you blame insurance companies not doing it on a whim? Remember Pensions Term Assurance changes that they all did? Millions were spent and wasted when the rules were changed again.

    Until its firmly in the statute why change anything?

    Rember also some of the other systems were written in the 80’s and will cost millions again to amend them. Life companies don’t want to loose people to people who can do these things too so they have to weight up the choices.

  8. Classic winging from uninformed IFAs blaming Life Companies. The Governement announced the change at a day’s notice and expect everyone to jump for a something which only lasts a few months and affects a tiny minority of clients. And is essentially pointless.

    If the civil servants actually asked the life companies how hard it was to make these changes, no-one in thier right mind would have agreed to them.

    For once they should realise they have made a monumentous mistake and reverse it, clearing the way for the proper legislation to take effect next year.

  9. The solution to the complicated mess of retirement income options is simple and would be simple to implement.

    I suspect the main problem here is Mark Hoban.

  10. The whole system stinks

  11. I understand that Sun Life Financial of Canada have issued a press release confirming that they are able to adminster their existing i2Live and back book as well as receive NEW business, pay income to client and pay the adviser for giving advice in this transitionary period. Give them a call – 0845 071 0200
    It looks interesting especially their Flexible Annuity proposition with MORTALITY CREDITS.

  12. @ USP Guy

    Stinks? In what way? We could always run products with paper files so we didn’t need systems…that could be fun for the millions of pension plans. Want to switch fund? Oooo that will be 5 weeks turn around time…

  13. Whilst I don’t usually have a great deal of sympathy for Life Companies, if the systems that they have in place cannot be changed, then it will be a considerable IT cost to change them. The age 75 rule has been around since drawdown was introduced in the early 1990’s. If I ran a Life Company I would look at it and say, ” how much will it cost to make the change?, how much would it cost if all policyholders who would be effected by the changes transferred out” if the answer to question two was more than question one then it would be stupid to divert lots of cash to this.

  14. I am sure those few people affected do not think it a pointless exercise,yes it is a mess untill fully sorted but a mess created by previous legislation which this government is trying to sort out . Funny how some true wrap providers have been able to accomodate this but not the life companies perhaps its all about who they put first ie the client

  15. If a life company imagined that there would be no changes to pension age legislation for the lifetime of its IT system, they are demented. It was always clear that the 75 age limit would have to be amended or removed eventually, due to people living longer and having different expectations of retirement.

    Imagine that a pensions company designed its systems so that all taxpayers with a basic rate coding automatically had 22% (not “basic rate tax”, just “22%”) deducted from their gross income. Then when the government reduced BRT, they continued to deduct 22% and bleated that they couldn’t possibly be expected to foresee that basic rate tax would ever change. This is the exact same level of stupidity. Everyone knows that tax rates will change and any system needs to treat them as a variable. Everyone involved in pensions should know that the exact same applies to any sort of pension-related age limit.

    When they designed their IT systems they should have foreseen that legislative factors such as the age 75 limit could and would change in the future and made it possible to alter those variables, not hard-coded them in so that the system had to be taken apart, rebuilt and tested. If they didn’t, that is their own fault and at a minimum they should allow all affected customers to transfer out without delay and waive all transfer charges.

    In fact I would argue that the amount of stupidity involved is such that they should not only waive any transfer fee but also be made to pay for the cost of advice required by the customer in finding an appropriate alternative provider.

  16. After the previous govt said that would not raise the max age for annuities, now the pension companies say they cannot?

    This really could be be a soap opera:
    Pensionation Street, PensionEnders, Retire and Away,
    Would anyone watch it?

  17. Baldyhead Pensioner 12th August 2010 at 4:24 pm

    I have found a pension provider that will adminstrate a Post 75 drawdown for both their exisiting book and NEW clients. They will pay income to clients not just zero income and also pay the adviser for giving the advice. They have decided as a business to show a strong intention to fully embrace the changes following the HMRC consultation. These changes may fail to make it through the legislative process for April 2011 (reminds me of A-day). They are Sun Life Financial of Canada – contact them on 0845 071 0200, or speak to your local sales consultant. They also have a cracking flexible annuity plan too – mortality credits with an income gaurantee!

  18. What’s the huge hang up about age 75 anyway? Some people are beginning to lose their mental faculties by that age whilst many others are still as sharp as a tack. Why doesn’t the government scrap that as a first step towards simplification?

  19. Although I do feel for life offices and the work that is involved in changing systems surely they should be able to react. Advisers are expected to constantly keep up to date from a knowledge and process point of view surely large life offices should be able to as well??!!

    There are offices that seem to take the business as mentioned in the office but with a manual work around. I have only found one not mentioned in the artilcle that can illustrate and take the business after finding another article on the internet about Sun Life Financial of Canada.

    Surely if one life office can change their systems and illustrate for this business others can?

  20. Surely if we have flexible products in the pension market we should have flexible systems to support such change?

    Is this just a sign of things to come from certain providers?

  21. Surely companies should be made to make these changes, it is regulation not choice!

    At least we have some companies that are trying to help the industry

  22. All i will say is insurance companies with legacy systems and processes need to help advisers and their client through this legislative change period. It creates a huge opportunity for both advisers and clients who can now get what they have always wanted. Surely, if companies that are serious about this market then they need to step up to the plate. Thanks goodness some are, but only for existing clients and also Sun Life Financial of Canada who are for ALL clients!

  23. They say around £24.8 million pounds of pension funds crystallise at age 75. Of course most of those would purchase an annuity..but apart from DD their are also Flexible Annuities where Mortality Credits not Drag offer a major benefit. My final comment is, what happens if the consultation and final legislation doesn’t happen April 2011? Remember A-day being pushed back as providers couldn’t change systems. Thank goodness fo Sun Life Financial of Canada…I know they have had business submitted already

  24. It seems that there is a big opportunity here being missed by advisers and life offices.

    Why is it that some office have adopted early and others are actually refusing to do anything?

  25. Insurers are businesses and will make a decisions whether it is financially sensible to spend proigrammers time to change a system to enable these changes. If they choose not to, that is their right in business, just as it is ours as agents of our clients to reccomend a transfer where appropriate to a company willing to change their systems to enable this to happen.
    Where the failure to change systems combined with a loss which woudl occur on transfer for a client exists, the insuer with any brain will have worked out the liklehood of this reulsting in a complaint going to the FOS (as it probably would) and costing them the FOS fee and factor that in to waiving transfer penalties (whetehr justified or not) to a certain level.
    Unfortunately, when you look at the names of the three firms quoted in this article, you know that it’s not going to be that straightforward as at least one of them doesn’t know their a from their elbow when it comes to the difference between good and bad customer service!

  26. There are a few things happening 17th August 2010 at 3:27 pm

    For the many people who seem to think these changes are simple, they are not. Especially on top of Pensions Reform, Tax, Solvency II, RDR changes. Not asking for synpathy rather to help some understand before shooting from the hip

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