Friends life has left thousands of it pension customers in limbo after deciding not to offer the new flexi-access drawdown facility to its members. Friend Life was acquired by Aviva in December 2014 when they agreed to pay £5.6bn for the life company. It’s currently writing to its member to inform them that they have a more limited range of options than the rest of the larger providers.
Pension reforms over the last year have allowed those with a pension fund, full access to their money. Where previously most bought an annuity and were stuck with a level lifetime income, pension drawdown (or flexi-access drawdown as it’s been named) provides full access to funds whilst keeping invested. It’s widely thought that although this type of arrangement isn’t a guaranteed lifetime income like an annuity, it gives people more flexibility and choice with their life savings.
The move by Friends Life has been taken after a lengthy review on whether they can offer drawdown cost effectively and at a profit to the organization. Because of the speed at which the pension reform announcements were made and implemented, many of the pension companies have had to spend millions getting their systems up to speed. This has led some providers to simply refrain from adapting the new ways to offer pension income to protect their bottom line.
At Compare Drawdown we have heard from customers first hand who are having to now move their pensions after waiting for 2 months since the start of the new tax year, to access their money. One lady we spoke to said that she had been calling Friends Life almost daily to get answers but was met by ‘very unhelpful’ call operatives. She said
‘they just couldn’t answer any of my queries and now I know why, they knew all along they weren’t going to be able to put me into drawdown so why didn’t they just tell me this at the start and I could have moved it elsewhere’.
The only feature of the new reforms Friends Life are to offer is full encashment. This would leave many having to pay a large tax bill on 75% of their fund as it’s added to your income tax bill in the year of encashment.
The move by Friends Life might be the first of a number of companies who either refuse or pull out of offering pension drawdown. As assessment on viability will be conducted by all the major providers over the next year as they simply don’t know how people are going to take their pensions. If people are using drawdown to strip out their pension funds in the shortest possible time, whilst managing their income tax bill, it may become an unprofitable venture. The profitability of drawdown to providers will only come through years of fees being taken. If the funds are stripped out straight away it could become a loss making operation.