Contrary to what some commentators are calling for, I do not think providers have to offer decumulation. It has been reported that the secretary of state for work and pensions, Iain Duncan Smith, said the government was prepared to “name and shame” firms putting up barriers to access.
While I think the phraseology of his comment was a little harsh, I completely support the fact that a provider must make it clear that all they are offering is accumulation, and there must be a very transparent set of charges, the bases of which are universally accepted, such that it allows people to compare those providers that offer only accumulation, or accumulation and decumulation.
Carte blanche imposition of charges is also likely to be unworkable, especially for people who are currently invested in illiquid funds. But this is one area that the FCA may need to review. Consumer champion Which? recently found examples of pension companies which were charging as much as 2.76 per cent a year to make regular withdrawals. However, these charges are insignificant compared to some exit penalties on certain funds.
One of my biggest concerns is small-pot pensioners, especially as we, as a business, have always tried to support their needs. As the majority of pensioners have pots of less than £30,000, it would be perverse if one of the key reasons for the new pension flexibilities was effectively prevented because most providers failed to offer this option.
I find the approach a little perverse when one of the biggest financial transactions that anyone will ever make, being the purchase of their home, has uncapped estate agents’ fees which all too often bear no resemblance to the costs incurred.
The good news is, at least initially, there seems to be a lot of competition in the drawdown market, which should help to drive down charges. However, we are also seeing areas of concern, such as unnecessary delays and charges from providers associated with transferring pensions, a lack of transparency and regulatory concerns.
What is clear, however, is that the pensions industry needs to improve its ability to service people with decumulation in a much more effective manner, as their legacy systems currently block some people from the new freedoms. The industry must embrace technology in order to improve efficiencies.
Jamie Smith-Thompson is managing director of Portal Financial
Key points
We live in a world where the immediate government reaction when the financial services industry fails to offer what it deems reasonable, is to introduce charge caps.
Competition should ensure that the market works efficiently.
It is not a surprise that drawdown products have yet to adapt.
