‘THEY haven’t quite got the hang of it yet, have they… the bastards” is probably how you’d summarise the feedback I’ve had from readers about their experience of the pension “freedoms”.
I’ve been told about long delays, poor communication, confusion over the tax rules and complaints about the hoops they’ve been made to jump through by pension companies.
What I haven’t heard – just over two months after changes were introduced to make it easier for people to access their pension pots from the age of 55 – is anything surprising. It’s been primarily about shortcomings in competence and communication.
But some commentators and national papers are having a field day as they discover, to their apparent astonishment, that the pensions industry is having difficulties with all these changes. These are typically the same sources that spent the year up to the overhaul yelling excitedly about how great it would all be. Expectations were duly set at a level that could never be reached. Hmm. See what’s happened there?
The pension companies failing to deliver on the promise of the new freedoms are the same ones that presided over an anti-competitive annuity market and so gave the government an excuse to launch this crazy exercise in the first place.
The reality is that there remains an industry-wide difficulty with understanding what people want and providing it. Some firms are far better than others, but there’s a cultural problem that doesn’t disappear with new legislation. Old habits are too hard to shake off. Firms overcharging customers for withdrawals that cost relatively little to process need to urgently rethink their approach. The same goes for excessive exit fees. Several just can’t resist a rip-off when an opportunity presents itself.
Pension providers have to get a grip on their back-office systems too, especially those with a big “legacy” book causing some of the biggest admin problems.
In too many cases the problems are exacerbated by the industry’s ongoing communications problem. While some firms have made real progress here, most still struggle to speak human.
But the criticism aimed at pension firms isn’t all fair. Take the complaints from people upset at being told to take advice before they can get their hands on their cash. It’s possible – just possible – that some providers do have the best interests of their customers at heart. And the level of confusion over tax – many people are still surprised to learn they have to pay tax on most of the cash they withdraw – underlines the risk of anyone taking out large pots of cash without understanding the implications.
It was always going to be messy, as the Treasury compounded its folly by giving the industry far too little time to prepare. Many of the weaknesses being exposed once more in the pensions industry are shared by large sections of the financial services sector.
Pension firms are fond of calling for a “cultural shift” in people’s attitude towards long-term saving. But the greatest need is for a cultural shift within the industry itself, and that will take a long time. Until then, you’ll need to manage your expectations when you’re dealing with your pension provider.