The concept of treating customers fairly took a hammering last week as three major Insurers announced that they were unable to allow customers to continue in an unsecured pension until the age of 77, in line with the George Osborne’s June budget changes.
The Chancellor had announced the abolition of forced annuitisation at 75 from April 2011. He also announced the immediate increase in the age for forced annuitisation to 77, as an interim measure to avoid penalising those who would reach the age of 75 before then.
Legal & General, Prudential and Scottish Widows have now announced that the time frame is too short and the move would affect too few customers. Therefore, they are not going to make any changes to cope with the interim move of the forced annuitisation date to age 77 and will wait to implement changes when the full annuity reforms come into play next April. Their customers who reach 75 over the next year will be forced to annuitise, despite the Chancellor’s best efforts to prevent it.
For others, the picture is more confusing. Aviva will not be able to allow continuation for some of their products such as the Norwich Union Income Drawdown but will allow it for SIPP customers. Axa Elevate and Winterthur customers will be able to remain in USP, but only if they are not dependant upon their pension, as they will not be able to pay out beyond the age of 75. Only Aegon, Standard Life and Scottish Life have unambiguously announced that they will allow the extension of the USP in full payment for the interim period.
This will give an immediate boost to these three, as pensioners who wish to continue in USP will now have to transfer from those unable to allow this to those who can.
The reason given for the refusal to increase the annuitisation age, by the companies that are not doing it, is the difficulty of amending systems to both prevent the automatic annuitisation at 75 and to allow the continuation of payments. Therefore the customer’s needs are being subordinated to the systems capabilities.
This also portends a difficult time ahead for these companies in the run up to the full reforms next April, as they will be implementing the reforms on systems that they are acknowledging to be badly designed and inflexible.
For Insurers who cannot respond to the Chancellors dynamic move, this inability to react should be the trigger to review their IT systems. The only certainty over the next few years in the pension’s world is that changes to the regulations will be coming thick and fast. Without responsive systems, Insurers will be spending large amounts of their IT budgets just to remain compliant while those with truly flexible, parameterised systems will be free to innovate and dominate the most lucrative segments of the market.
Sometimes the cost of doing nothing far outweighs the cost of change.