We are seeing an increasing number of employers employing annuity brokerage services to help staff make appropriate retirement income decisions. However, delays in data transfer are causing problems. Helen Morrissey looks at why these delays are occurring and what can be done about it.
Employer responsibility regarding their staff's pensions and retirement is constantly evolving. This Autumn we will see the largest employers starting to auto-enrol staff into a qualifying pension scheme. However, there is an increasing need for employers to extend the support they offer to staff into the at and post retirement phase.
The abolition of the default retirement age means employers can no longer rely on employees retiring at 65. If this is not well managed employers could find themselves with employees working longer because they have to, not because they want to. In addition the increased complexity of the retirement income market means retirees need more assistance than ever in making the right retirement income decisions. As many either can't afford or don't know how to go about getting appropriate advice we are seeing more employers getting involved in helping employees navigate this area.
"When trustees come to see us they have significant issues in that now the default retirement age has been taken away they have an extra incentive to ensure their clients retire well," says Annuity Direct CEO, Bob Bullivant. "This helps with HR planning and also ensures people get the best value for money from their pension."
In March Fidelity signed an agreement with retirement specialist Annuity Direct to give members in its DC pension schemes access to whole of market retirement guidance and advice services. In addition, services such as The Open Market Annuity Service (TOMAS) have been working with employers to help employees exercise their Open Market Option. While the development of such services can only be seen as a good thing there are issues that need to be navigated. Many advisers have reported difficulties in extracting the necessary data from pension providers on retiring employees. Data protection issues are highlighted which can result in huge delays for advisers wishing to help employees make the right choices.
"There are issues when the adviser has advised the employer but not the employee," says TOMAS's sales and marketing director, Graeme Riddoch. "In this situation the adviser does not have a relationship with the employee directly and so it can be difficult when it comes to getting their details from the pension provider. More helpful providers will let you have a list of who is retiring that year but others say their systems don't work that way - are they just dragging their heels to hold on to people's money for a while longer? Some providers have brought up data protection issues and in this case we have to contact each employee to get individuals' authorities. This is not ideal."
Annuity Direct's Bullivant agrees saying: "It is all very muddled and can depend on the provider. I think some providers do hide behind the data protection issues in order to hold on to the annuity."
The spectre of self-interest has always followed the pensions industry. Pension providers have been accused of delaying transfers whether that be to other pension providers or annuity providers so they can hold on to money for as long as possible. However, while this may be the case with some providers, others are working to support the advice process as much as possible.
"There is always going to be an issue with data protection and we try to be as helpful as we can in this situation," says Legal & General's head of annuity development, Tim Gosden. "If the adviser is doing a good job then we need to support them as much as possible. I can't speak for everyone but there are providers who look to do their best by their customers which is difficult considering many people aren't engaged with their pensions. We aggregate pots, screen people for enhanced annuities and I'm not sure that what other parties are doing is any better."
He is backed up by Standard Life's head of workplace strategy Jamie Jenkins who says: "We fully support and encourage employers promoting choice and offering options to their employees at retirement. We have seen a general increase in pre-retirement services offered to employees - these can include the services of specific bureaus but can also be workshops designed to give employees details of what is available on retirement so they can make an informed choice that best suits their needs.
"We are happy to supply customer information when requested but at the same time we have to observe the need to protect customer data. The process can differ, based upon the legal structure of the pension scheme, but we aim to make it as straightforward as possible."
How to deal with the situation
So there is clearly a hurdle standing in the way of employees accessing retirement income advice but what can be done about it? The issue has caught the attention of the ABI with head of pensions Yvonne Braun saying: "We are aware that data protection rules may prevent some pension providers from sharing the details of customers who are due to retire. This is an issue that we are looking into with members."
So what can be done about it? Do advisers have to waste valuable time gaining individual permissions to access scheme member data? According to Riddoch it can often be a good plan for advisers to engage with the employer.
"Employers can get frustrated by this issue and some will actually contact employees themselves to ask them for their permission," he says. "It is often a good idea for the adviser to engage with the employer as the employee trusts them more than an advisory firm who they may have had no contact with up until this point."
However, Annuity Direct has come up with a robust solution to the problem. The adviser has developed a system whereby the pension provider can access Annuity Direct's systems to generate what is essentially a blank open market wake up pack. The provider can populate this with the member's data and the best rates available for that client's circumstances are also included. The member is also given access to the Annuity Direct helpline number so they can contact them with any queries or if they want to purchase an annuity. The approach circumvents data protection issues because the provider is populating the wake up pack themselves rather than handing the information over to the adviser.
"We developed the system in response to the data protection issues that we faced when being brought in by employers to help scheme members make appropriate retirement income choices," says Bullivant. "The system has been up and running for nine months now and we've had great feedback on it."
He continues: "On the one hand providers are right in that they can't just hand over member's data to advisers but this system allows them to get around this issue by generating the wake up packs themselves. ... If we didn't operate in this way then we would need to get letters of authority from every member in order to access the data providers hold for them."
However, Legal & General's Gosden believes that improvements providers have made to warm up packs in addition to the incoming ABI code of conduct into retirement income means much of the sting will be taken out of the tail of this issue.
"I think the main pension providers have done a lot of work on wake up packs and I think what we are putting out is pretty good," he says. "I think the code of conduct will bring further improvements to the process as it encourages people to shop around. The code covers both written and verbal communications and the client must be taken through a certain process."
So as the retirement income market continues to grow we will see increasing numbers of employers looking to assist their staff in making viable retirement income choices. The thorny issue of accessing member data is likely to raise its head on an increasingly regular basis. It is clear that there are providers out there looking to help their members get the best outcomes and they will continue to work closely with employers, employees and annuity brokerage services to ensure this happens. However, those providers not actively looking deal with the issue are likely to come under increased pressure to find a solution.
Follows McVey's resignation
Schroders and Aviva Investors
LightTower Partners, Seneca Partners and Unicorn AM
Integration with Money Dashboard
View from the front row