Some pension providers are unlikely to be able to cope with the huge amount of administration requir...
Some pension providers are unlikely to be able to cope with the huge amount of administration required from 6 April 2003, when every provider must send out Statutory Money Purchase Illustrations to pension holders.
The SMPI from the Department for Work and Pensions requires all members of money purchase occupational schemes, stakeholder pension schemes and personal pension schemes receive an annual illustration of what their future pension might be as expressed in today's prices.
But while no pension provider has publicly announced it is in danger of failing to meet the April deadline for the new rules, some are struggling and will not do so, says e-business software provider Aqera which has based it estimates on extensive talks with many pension providers.
Although Aqera spokesman Kevin Ross could not reveal the names of pension providers it had spoken to, he said that a "minority" of pension providers was at risk of not meeting the deadline. These providers face engaging in a manual process for providing SMPIs and new business illustrations until systems are established to take over.
The Department for Work & Pensions estimates that each pension provider will spend £250,000 in changes to IT systems to accommodate the SMPI rules. The FSA expects the cost to each provider of meeting the PS134 obligations for new business pension illustration is £130,000.
Although the combined cost is estimated at £380,000, Aqera believes that costs will be magnified by 500% due to the burden of updating multiple, outdated legacy systems. Ross says that one particular provider has 47 different systems to change to accommodate SMPI.
Illustration calculations are often deeply embedded in providers' legacy systems. Aqera has identified the most profound and costly changes like the need to extend mortality assumptions to include both retirement age and year of retirement and the need to issue illustrations in real-terms by taking into account the effects of inflation.
More than half of people over the age of 55 see financial security as a top priority in retirement, yet a third allocate more time to buying a new car, research from Legal & General (L&G) has found.
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