Moret warns pension giants on legacy issues

John Moret, marketing director for Suffolk Life, has warned pension providers with cumbersome legacy issues they may fail to cope with the raft of legislative changes over the coming year and face challenges from new players.

He says the coalition government's timetable to change pension tax relief and annuitisation rules are ‘ambitious' and could leave providers struggling to keep up. This could provide a window for new players to the pensions market to fill the gap.

"Draft legislation is unlikely to be available until well into Q4 2010 leaving fewer than six months to the implementation date and there might still be further changes as the legislation is refined," says Moret.

"The industry's track record on accommodating significant legislative changes is not great and I am sure there will be some providers who push for a delay, particularly those with legacy issues."

Moret says reducing the cost of pension tax relief and changing the annuitisation rules are fundamental policies the government is unlikely to delay.

This gap between legislation coming in and providers adapting could give other firms the chance they need to undercut their competitors.

Moret says it is likely that "new entrants who are not burdened by huge legacy issues" could snap up business.

"These could be technology companies and platforms, who are already targeting the pensions space as well as fund managers, discretionary investment managers and wealth managers. They will all be attracted by the large sums of money which look destined to find their way into SIPPs and drawdown products and which potentially could stay invested well beyond age 75," he adds.

Andrew Tully, senior pensions policy manager at Standard Life, agrees a gap is possible.

"Firstly, it depends when we get final rules from the government," he says.

"Different providers will introduce changes at different times depending how easily and quickly they can make changes to their systems.

"For example, the recent temporary relaxation which means people can stay in an unsecured pension until age 77 has only been allowed by a few providers, including Standard Life.

"Second, it depends how far-reaching the reforms are. For example, extending unsecured pensions beyond age 75 is a relatively straightforward change.

"Introducing a whole new concept such as flexible drawdown would take all providers longer, particularly if they had to police who is allowed to use it, and I think that is the case whether it is an existing provider or a new player."

Rod McKie, head of proposition, pension and annuities at Aegon, adds: "We are confident we will meet the expected change to the annual allowance and associated tax relief though we need to see the final rules as soon as possible.

"We welcome the review of the age 75 rule and are fully engaged in the consultation process. This is more complicated as it goes beyond just scrapping forced annuitisation at age 75 but also to propose changes to USP.

"We are confident we will be able to support the removal of forced annuitisation and already offer the flexibility to extend USP beyond age 75 to existing customers in line with the interim legislation."