Freedom on death
The introduction of the pension freedoms meant radical changes in a short space of time, with providers scurrying round to be ready and the FCA playing catch-up after the event – most recently in the form of the Retirement Outcomes Review final report.
One measure taken by the Government to help providers at the time was the introduction to legislation of a statutory permissive override. This gave all DC schemes the ability to offer the pension freedoms without the need for updating scheme rules. It can be found in s273B of Finance Act 2004 for those of you who like that kind of thing.
The override allows every type of pension payment under the freedoms to be an authorised payment from any money purchase arrangement, and notably includes beneficiary’s benefits in the form of dependants’, nominees’ and successors’ drawdown. Despite this provision, advisers have been told by some providers that the only option for pension death benefits under a DC policy is an annuity. This is most commonly heard in relation to a section 32.
This may well be what is written in the scheme rules, however the override is the trump card. So any DC provider still stating they can’t do it on this basis is – to put it bluntly – wrong. Of course the override is permissive, so they don’t have to do it, but they definitely can.
The next sticking point is “computer says no” – our systems don’t allow it. It may well be the case that a provider’s system cannot facilitate flexi-access drawdown payments, however all they need to do is designate funds to drawdown, then the funds can be transferred on a like-for-like basis to a provider that can.
The designation itself isn’t tricky. All the ceding provider needs to do is confirm in writing to the new scheme that the funds have been designated to the beneficiary, the date of designation and whether the funds are taxable or not. Not so much of a system issue – just treating customers fairly to help them get the best outcome.
Ultimately you can’t force the provider to offer this solution, but you can make it clear to them there is no good reason for them not to.
So if you do come across such a scenario where a transfer would be the best option for your client, don’t accept the “no” you may get as your first answer. Ask them to phone a friend in their technical department, quote the legislation reference, and your client might just walk away a winner.