A J Bell Group has attacked providers for what it says is a "total abdication of responsibility" towards clients who have bought into Executive Pensions Plans (EPP) ahead of rule changes being introduced with A-Day.
It says the future of EPPs post A-Day could be at risk, with insurers handing over the responsibility of scheme administration to trustees and many companies closing their EPPs to new business.
The news follows the annoucement by Scottish Equitable, one of the UK’s largest insurers in the executive pensions market, that it will not act as either scheme administrator or scheme practitioner for EPPs after A-Day.
Norwich Union, Clerical Medical, Scottish Widows and Equitable Life have all made similar announcements.
Skandia and Standard Life have indicated they intend to offer a full service but Andy Bell, managing director of A J Bell group, says both insurers may not have an alternative as their contracts are most likely to have been written under a Master Trust arrangement, so the insurer is actually the trustee of the scheme and cannot avoid the extra responsibilities post-A-Day.
Bell says the majority of insurance companies will probably be quite glad to get rid of EPPs, as they won’t want to operate individual pension plans, and there is unlikely to be many offering new executive schemes, preferring instead to draw business into Self Invested Personal Pensions (Sipps) and personal pensions.
He adds there is probably going to be a major repositioning with companies like Standard Life possibly only offering the EPP service on its legacy book, and closing the product to new business.
Bell says he has some sympathy with insurers who are doing this, but says they have sold a package deal and scheme administration is part of the service the client bought. He suggests anyone with an EPP should check whether their insurer willl fulfill the role of scheme administrator, and if not should demand a penalty free transfer to an an insurer who will.
Under the new legislation, the role of the scheme administrator includes initial registration of the scheme, the submission of quarterly tax returns, annual event reports and pension scheme returns to the revenue. It also includes writing to members who have retired every year outlining how much lifetime allowance has been used up in respect of the scheme.
“This is a total abdication of responsibility. Not only will it undermine the new pension regime but it places a totally unfair burden onto customers who have bought a packaged pension product in good faith. The price of packaged pension products is supposed to include all aspects of pension administration,” says Bell.
He adds insurers are now conveniently ducking out of a major part of their role with no compensation or sensible alternative being put forward. The majority of EPPs will effectively become self administered pension schemes and as we all know this is a specialist market.”
But Rachel Vahey, head of pensions development at Scottish Equitable, disagrees insurers are walking away from their responsibility. She says the Revenue has drafted the rules to make trustees the automatic scheme administrator as they are the people who put the scheme together and they are the ones who have the holistic view of the scheme.
Vahey adds: “We are not walking away from our responsibility in fact we will do everything we can to support them, giving them a package of information on what to do and when, and providing triggers to let them know when to do things.”
She adds Scottish Equitable has been very pro-active in working with trustees and letting them know this was going to happen, but points out although it is a massive change, it is only one small thing within the bigger picture, as there are loads of things happening to trustees through the Pensions Act 2004.
Vahey also suggests the majority of small schemes will hardly ever have to report, which is why they will be reminded when to do so and with what, whereas with bigger schemes which have to report every day it will not be so much of an issue, particularly with the introduction by the Revenue of a comprehensive online reporting scheme.
And she points out Scottish Equitable is not the only company which has made this decision, merely that it was the first to make the announcement.
Vahey says: “Epps were set up to provide greater contributions and higher benefits which you will now be able to get from a personal pension. It no longer offers great advantages, but the responsibilities are being left behind.”
She adds the decline of EPPs is a natural progression, as they did exist for a good reason, but in an evolving market, if the advantages are no longer there, it makes more sense, depending on the circumstances, to perhaps move to a contract based scheme which has the same advantages but with less administration.
Bell, says: “The self administered pension market will explode overnight on 5th April, but it will be a while before anyone hears the explosion! One could also be forgiven for concluding this is a pre-emptive move by the insurers to encourage the transfer from EPP into personal pension.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
What made financial headlines over the weekend?
Regardless of Brexit outcome
Prefer hard assets and cashflow
£15bn investment gap
Replaced by Stephen McPhillips