SCOTLAND’S pension firms are coming under fire from frustrated savers and advisers as they struggle to cope with a surge of business following last month’s pension reforms.
Providers are continuing to attract criticism for delays in dealing with queries and acting on requests almost five weeks after new pension access rules took effect.
Call volumes have slowed following the backlog that built up prior to 6 April, but providers remain under pressure from irate customers to improve their responses.
Under the changes, members of defined contribution schemes can now take their pension pots in one go, with no obligation to use their liberated cash for a retirement income. Savers can take up to 25 per cent tax-free – as before – and the remainder is charged at their marginal rate (rather than the previous 55 per cent).
Pension firms were given a year to prepare, but with many of the details only set out in the final weeks, there were concerns that they would not be ready on time.
Scottish Widows reported more than 15,000 calls in the first week alone, slowing to 11,600 by the third week (although more people contacted the firm online than by phone).
Robert Cochran, pensions expert at Scottish Widows, said: “We received 45,000 phone calls in the first three weeks with 55,000 people visiting our retirement freedoms website and around 6,000 customers have gone on to fill in forms requesting funds to be cashed and call-backs for more complex options.”
Aegon received 40 per cent more calls in April than in the same month last year, while Standard Life also saw a sharp increase in inquiries. The Edinburgh firm is among several providers to have attracted complaints from irate customers.
One Scotland on Sunday reader, John Paterson, filed a complaint with Standard Life after his wife experienced delays in taking cash from her pension. Mr Paterson, an experienced pension trustee, said they contacted the company on 6 April to request tax-free cash from a small pension that Mrs Paterson built up before she stopped working to raise their children.
“But it was a disaster – jammed phone lines after almost a day of holding on, promises to get back in 72 hours stretched to 120 hours,” he said. “When we eventually got through we were reassured that it was an easy process and that funds would be in our bank in four to six days. When this failed we were told it was eight to 10 working days.”
The funds were transferred following their complaint, plus a small compensation payment. Standard Life said that while it had invested in training and systems developments to deal with the extra demand, an “unprecedented level of customer contact in the first week of pensions freedoms… meant it took longer to respond to some customers than usual”.
Jamie Jenkins, head of pensions strategy at Standard Life, said: “While we aim to carry out people’s instructions in just a few days, given the high levels of enquiries some requests are currently taking longer to process.”
Graeme Mitchell, managing director of Lowland Financial Planning in Galashiels, said there had been similar problems across the industry.
“There seems to be a systemic acceptance of poor standards. I would not be in business if I applied the same standards as insurance companies. There are honourable exceptions, such as Scottish Life, but they are very much the exception.” He warned that savers could experience further difficulties and delays.
“Admin is no better than two weeks ago. I do understand that it must be very difficult for companies to provide information, especially for older plans,” he said. “But surely they could have seen this coming and made plans to cope – or warned advisers and clients about the problem ahead of time.”
Pension providers have been “caught on the hop”, according to Jason Hemmings, partner at Cornerstone Asset Management. “Some providers, mainly those who have traditionally been involved at the lower end of the pension market, are quoting 15 working day timescales just to receive information,” he said. “This problem has been exacerbated by enquiries from IFAs advising clients but also consumers contacting providers direct.“
Some early indications are emerging as to what savers plan to do with their pension pots under the new regime. Just over one in 10 Aegon customers using its online “your retirement planner” tool said taking their cash in one go was their preferred option. Another 17 per cent said they would probably take out an annuity and more than seven in 10 opted for some form of drawdown.
One firm, MGM Advantage, believes large numbers of people are taking their cash out of their pensions and reinvesting it in ways that could leave them badly out of pocket later in retirement.
“If people are planning to take money out just to invest elsewhere then they are taking a gamble,” said Andrew Tully, pensions technical director at MGM. “Not only will they pay income tax on the withdrawal, but they are moving from tax-free growth in the pension wrapper to potentially a taxed environment.
Alan Dick, principal at Forty Two Wealth Management in Glasgow, said there was no sign of any rush to encash entire pensions, however. “We are seeing the new rules being used in certain specific circumstances, otherwise its pretty much business as usual.”