Naming Firms Not Offering Pension Flexibility

Naming Firms Not Offering Pension Flexibility.

Secretary of State for Work and Pensions, Iain Duncan Smith, has suggested that the government will ‘name and shame’ pension scheme providers that do not move with new pension flexible drawdown laws that started in 2015.

The fact that some pension companies do not offer the new pension flexibility for drawdown at retirement means that pension savers are forced to transfer their pension rights to a company that does.

This then presents an additional burden, where in most cases, the new receiving company that is going to facilitate the pension flexibility, requires confirmation in the form of a confirmation certificate signed by a financial adviser confirming that they have given advice as to the suitability of flexible pension benefits for the client. When financial advisers give advice they are required to research, report, offer suitability and affordability information as well as pointing out the risks and downside of certain actions as well as the positive. In such cases, financial advisers are then liable for that advice on an open ended basis. As a result, consumers then pay a fee for that advice when they may not wish to have done so if their existing pension scheme actually offered the flexibility.

Is the government stance right in ‘name and shame’?

We think they are not. There have been over 40 pieces of legislation that affect pensions over the last 40 years. Each pension has been taken out at a different time and therefore may have a totally different set of rules and tax law and guarantees that attach to it. If, ‘willy-nilly’ providers are forced to offer pension flexibility and consumers walk into it and subsequently lose valuable benefits, guess who will be blamed for it and pick up the ‘butchers bill’? Yes, the finance industry.

In addition, the sheer costs involved to update a system for pension schemes that were built 30 years ago is huge. Who pays for that?

Ask the government: will they change their stance and not tax people on a week 1/month 1 basis for withdrawals of flexible pension drawdown meaning that HMRC is collecting much higher taxes today which then need to be refunded if you ever find out? We guess not! We guess they will argue that HMRC’s systems need updating and they have not been.

Flexible pension access is a good thing, but it works both ways in terms of the risks of clients running out of money, the risk that a new government in 5 years’ time will change the law meaning systems have to be changed again and the sheer costs on all sides, mean that it must be considered in a serious manner and not simply threatening to name and shame pension companies that believe their business is better suited to letting clients transfer their pension money away to another pension provider. This must tell IDS something.