Friends Life makes 'pension freedom' stay locked up
Bad news is coming in for those in, or approaching retirement who hold their pension fund with large insurance company Friends Life (a subsidiary of Aviva)- the company has controversially decided not to offer the flexible drawdown option introduced by Chancellor George Osborne as part of his sweeping reform of pensions. Pension-holders are now faced with the prospect of either withdrawing the whole pot and facing the tax charge, or transferring to a new provider subject to fees and charges.
Of course, pensioners can also take an annuity, just as they could before “Pension Freedom Day” on 6 April this year, but the point of the changes was to prevent pensioners being forced into buying an annuity- and therefore wiping out the whole value of their pension fund over time- if they did not want to. However, while the rules have changed, insurance companies are under no obligation to offer all of the new freedoms bestowed by Mr Osborne. A spokesman for the Treasury said companies that did not offer the "full range of flexibilities" were missing a "great opportunity".
Even before 6 April, some providers warned that they would not be able to offer ‘flexible drawdown’ straightaway, often likened to using the pension fund as a bank account, with the freedom and flexibility to withdraw small and regular amounts to meet expenditure as and when required. Friends Life customers were led to believe they would be able to access their money flexibly under new Government rules once the company had got their systems in place- Friends Life initially told customers that their applications to make partial withdrawals had merely been "delayed". Two months later, savers who don’t want an annuity are being told to go away and find another company that will do flexible drawdown- not so attractive when moving a pension fund can cost “hundreds or even thousands of pounds” in penalties and fees.
In simple terms, the company has now decided it’s just not going to offer a flexible drawdown service. And no one can make them. The only thing the company will offer- full withdrawal- could see pensioners being faced with an income tax bill on 75% of the value of the fund withdrawn. Which could be very ouchy.
Friends Life has five million customers, although some are not pension holders, and if a large firm such as this does not have the resources to offer full pension freedom, it doesn’t look good for those currently pension-funded up with one of the smaller firms. Customers of Friends Life’s parent company, Aviva, are unaffected by the announcement.
Tom McPhail, head of pensions research at Hargreaves Lansdown, told the Telegraph that the U-turn by Friends Life set a "precedent" that other insurers could follow.
A spokesman for Friends Life reportedly said they “had intended” to offer flexible drawdown, but “changed their mind” as it “would require a lot of manual and time consuming work". Or basically, it was just too much hassle for them.
"We apologise to those customers who wish to partially withdraw their savings through the new pension freedoms as we are not offering this service at the moment," the spokesman added, as a salve to no one.