When the pension freedoms became reality in April 2015 there was an expectation that platforms would soon offer the income flexibility that investors would need.
Nearly three years on, however, it seems that many platforms are still playing catch up.
More than £6.5bn was taken out of pensions in the form of flexible payments last year, according to new HM Revenue & Customs (HMRC) figures, taking the total to £15.7bn since the freedoms launched.
Some 200,000 people took advantage of flexible withdrawal options in the final three months of 2017, with the quarterly withdrawal rate settling in the region of £1.5bn to £1.6bn over the past 18 months. Demand for flexible payments through uncrystallised funds pension lump sums (UFPLS) and drawdown, therefore, remains robust.
With pension savings accounting for nearly half of the assets held on advised platforms, according to lang cat research, there is clearly demand too for pensions-friendly functions on those platforms. Ideally, platforms would be the main facilitator of the flexibilities for vast numbers of advisers and investors.
Yet significant gaps remain. While advisers will have few difficulties accessing the functionality required for clients still in accumulation, it’s a different story when clients enter the decumulation phase.
Advisers managing withdrawals from retirement savings will find that some still don’t offer relatively basic capabilities such as UFPLS, cash account facilities, natural income options or tax-efficient withdrawal tools.
Functions such as outstanding allowance reports, consolidated income payments and consolidated drawdown pots are also conspicuously absent from several platforms.
Research last year by the lang cat found that two widely used adviser platforms were missing seven of the 11 features that advisers might want available for clients in retirement. Several other big players were missing five or six of the main decumulation functions, with just a couple of advised platforms providing the full suite.
In other words, advisers may find that for retired clients taking an income from their pension pot, the platform they use isn’t playing ball.
There seems to be a perception among advisers that platforms are up to speed on decumulation functionality. It’s an impression that may have been created by the presence of some of the more complex functionality, but the difficulties often lie in the detail.
For example, some platforms still don’t allow advisers to choose a particular date for income payments, while in other cases several platforms are unable to facilitate the consolidated income payments (across different wrappers) that advisers will want for certain clients.
There are also ongoing issues around flexibility of income payments. While specialist pensions providers are offering the option to take partial or phased income or select an element of guaranteed income, more mainstream platforms have not yet incorporated similar functionality into their systems.
This means advisers and clients lose some of the key flexibility of pension freedoms by remaining on platform in decumulation.
Far from platforms making it easier for advisers and clients to take advantage of the pensions flexibility available to them, evidence suggests some are making it more difficult than it should be.
This could be a key differentiator when it comes to advisers selecting platforms.
Relatively few seem to be making platform choices on the basis of the decumulation functionality available. This is likely to change as more clients make the shift from accumulation to decumulation.
The latest data from HMRC make it clear that demand for withdrawals remains high with the number of payments increasing, even as the total amount being taken out begin to drop (in what we hope is an indication of greater sustainability of withdrawals).
The technology exists to help advisers and clients make the most of pension freedoms and some providers, especially the retirement specialists, but also some retail platforms, are excelling in decumulation and offering true innovation in the at retirement market.
However, many platforms are missing out in this area and may yet come under pressure from advisers and investors to facilitate pension withdrawal requirements and offer greater functionality. As it stands, they are vulnerable to suggestions that they aren’t doing enough.
David Simpson is head of Europe, the Middle East and Africa at GBST