Adapting to the Taxation Of Pensions Act

With the Taxation of Pensions Act 2014 now in effect, wealth, life and pensions providers are finding their resources stretched with an increased number of customers enquiring about taking advantage of drawing down their pension funds.

In fact, figures released by the Association of British Insurers (ABI) revealed that ABI members received 200,000 calls from customers in the first week following the introduction of the new Act alone [1].

The Act brings about key legislative changes that now allows anyone aged 55 and over to gain immediate access to their private pension pot for the first time.

Ahead of the Act coming in to force on April 6 2015, headlines screamed of pensioners withdrawing six-figure sums to take straight to the Lamborghini garage – whilst Chancellor George Osborne dismissed fears that individuals would blow their private pension on Italian sports cars.

What has been the reality?

So far, nearly a quarter of a million payments have been made totaling £1.8 billion – with the average pot being taken currently at £15,500 [2].

Despite the increase in monies paid out, it is still clear that private pension holders represent some of the most financially savvy, least transient and most risk-averse segments of society, with many still using the monies to purchase annuities or other income drawdown products.

In fact, ABI data also shows that many customers are shopping around for the best deal, with nearly half (45%) choosing a different provider when buying an annuity and over half (52%) switching when buying an income drawdown product [2].

However, with the increase in enquiries to draw down funds, the pressure is on providers to effectively manage their resources to accommodate this, whilst ensuring they are able to offer flexibility and safety to their customers when pay-outs are made.

A new way of working…

Pressures on resources may mean providers look to adapt their systems to deal with an increase in enquiries from customers. This will need to be managed in a way that supports easy access to funds when customers want them, but doesn’t leave individuals or providers open to the risk of fraud.

By managing resources more effectively through optimising the customer journey, providers can offer a slicker, more direct route to pension’s draw-downs – without compromising on security.

Processes with a heavy administrative burden, such as manual checking of paper identity documents and Know Your Customer checks, can be streamlined and automated to free-up resources to better service customers.

Sources:
[1] – Association of British Insurers, April 2015
[2] – Industry figures reveal more than £1.8 billion withdrawn in first two months, July 2015