Will the Pension Changes by a "Dash for Cash" or a Relay Race?

The changes to pensions announced in this year’s Budget were put centre-stage again on 14 October, with the media reporting that the Chancellor would be announcing a new pension withdrawal option.

This will enable pension policyholders over the age of 55 to not only take their pension fund in stages, but to take part of each tranche tax-free. Under the current rules, the tax-free cash element of pensions can only be taken in one withdrawal.

The technicalities of how this works rely on the creation of a new pension event, called Uncrystallised Funds Pension Lump Sums (or UFPLS for short – I know, not at all catchy.) The UFPLS rules will allow a portion of a pension fund to be drawn as cash, with 25% of each withdrawal being tax-free. The rules will fundamentally change, so pensioners will not have to put the remainder of savings into an income drawdown arrangement, having made a withdrawal. Neither will they have to buy an annuity within 6 months of tax-free cash being taken. In fact they won’t have to buy an annuity at all.

What these changes do is they confirm once and for all that pensions will change completely from April, 2015. They really can be treated something like a bank account, where pensioners take amounts out of their funds as and when they need them, only paying tax on 75% of what they withdraw.  Or if they want to, they can take the whole lot out as one lump sum – there’ll be nothing stopping them.

This depends in practice, firstly, on whether providers are able (or even willing) to make changes to their scheme rules to enable these benefits to be provided. There is also then the issue of whether firms will have the systems and administrative capabilities to deliver such benefits in time for next April.

It’s early days yet, but many firms may indeed decide to embrace these changes. They may argue that the changes present an opportunity to highlight the benefits of periodic withdrawals to their pension customers, and the merits of retaining investments with them whilst making withdrawals. Others will no doubt be looking at their overall investment and wealth management propositions, to try and attract as much newly-released pension money as possible.

Either way, it looks more and more likely that there will be a “dash for cash” come next April, from pension customers aged over 55. In reality, this is going to look more like a two-handed relay race rather than a straight dash. Those who start the race will be the firms having to deal with customers wishing to make withdrawals. And those who take over the baton for the anchor leg will be the ones looking to benefit from the extra cash being made available for investment.

Both sets of firms will need to keep a very close eye on their training and development needs over the coming months. There is a fundamental training need that all firms will need to address, and that’s knowledge.

The first leg

Now that these proposals have been announced, they’re likely to generate a fresh round of interest from the public.  And all pension providers, whether they intend to make this facility available or not, will inevitably have to deal with queries from their customers.

Their customer care staff will need to be able to handle these queries from both a technical and a firm-specific perspective. In other words, they will have to explain to customers how the rules will work and what their policies will allow them to do.

I accept that a lot of this can be dealt with via call scripts, but there still needs to be a basic level of understanding that staff will need, to be able to deal with queries confidently; and some staff may need extra technical training to deal with unusual queries that are “off script”.

The other problem firms on the “first leg” of the relay will need to deal with is the operational matter of how to deal with the increase in the number of withdrawal requests. The industry may well be expecting a spike of pent-up demand from those over age 55 holding off until next April so they can avoid buying an annuity. If this happens, firms will need extra staff to cope with their volumes whilst not compromising their service standards.

These people, many of whom are likely to be temporary staff, will need to be trained quickly and efficiently in the new rules and the firm’s procedures.

The anchor leg

Those on the “anchor leg” of the relay will also have to be mindful of their training requirements. Firms such as, for example, banks, looking to leverage their wealth management capabilities by introducing new investment propositions, will require controls to be equally as strong.

New sales procedures will need to be constructed, and advisers will need to receive training on how to carry these out. At the same time, training needs will need to be considered under the existing training and competence schemes, not to mention middle and back office functions such as those checking the quality of sales files.

Training and knowledge will also be equally important for those who provide advice, either working for advisory firms or on their own. They will need to get to grips with the detailed technical implications as soon as possible, so they can advise their customers appropriately, and take advantage of what will no doubt be an opportunity for them.

Time is of the essence here, as there are only five months left before the pension changes take effect. Firms can make the most of that time by securing external help for their training needs.

In which case, the first port of call should always be with Industry Events Online.


Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

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