Norwich Union is poised to make the A-Day transition as smooth as possible for both advisers and customers
Just weeks remain until the most sweeping changes to Britain's pension regime in half a century are introduced. So called 'pension simplification' takes effect from 6 April, known as A-Day, and will provide a wealth of opportunities for intermediaries helping their clients to better plan their retirement savings.
Certainly, Norwich Union applauds the fact that the A-Day changes replace eight former pension regimes.
The current government deserves praise for taking this bold stance, which wipes the slate clean and introduces a single new set of rules that operate retrospectively.
All previous changes to the pension system in the past 50 years involved merely adding another set of rules on top of existing regimes, which merely built a highly complex system.
However, it is arguable that pension simplification has not done what it says on the tin by providing a simpler environment for customers.
Although a single system does provide a simpler framework compared to the status quo of eight regimes, it is indeed questionable whether that single regime is simple in itself. Furthermore, some will find the transition from previous regimes to the new post A-Day system far from simple.
Against this backdrop, the industry has been challenged to do its part by developing innovative solutions to make the transition as simple as possible in terms of product offerings.
Opportunities
Norwich Union has risen to the challenge. Ahead of the pending changes, Norwich Union has revamped its offering and will now concentrate on fewer products in a bid to provide simpler products that better meet the needs of advisers and customers.
The restructuring of Norwich Union's pension strategy means all new pensions policies are now written under a single scheme called Retirement Solutions (with the exception of stakeholder products which are required by regulations to be ring fenced).
The Retirement Solutions range covers the corporate and individual market. It includes simple products for those in the early stages of retirement saving, through to the more sophisticated pre and post-retirement options.
The single scheme will allow customers to move seamlessly between products, without requiring a formal transfer.
Therefore, customers can tailor their retirement planning by providing flexibility to change the shape of the retirement plans depending on personal circumstances, while retaining any tax-free cash protection from previous occupational schemes.
The adviser, meanwhile, will be able to spend less time on administration and more on client time and business development.
Full range
Certainly, Norwich Union believes offering simple products is vital. The UK public and media became transfixed with the idea of Self-Invested Personal Pensions (Sipps), prior to Chancellor Gordon Brown's U-turn on allowing residential and other exotic investments to be included. Despite the Chancellor's U-turn on property, demand for Sipps is still expected to be strong after gaining such a high profile.
While Sipps are excellent products for certain retirement savers, they are not the be all and end all. Sipps generally have higher charges than stakeholder and personal pension products and so there has to be a credible reason for using one. The FSA has said as much in its most recent newsletter.
Therefore, other personal pensions such as group personal pensions (GPPs) and stakeholder still have an important role to play in retirement savings. Norwich Union would encourage retirement savers with smaller sums of money to use this route first. When assets reach a larger size, it could be appropriate to move to a Sipp, but only if the Sipp offers the customer additional value over the original product.
Under Norwich Union's Retirement Solutions system no single product is more important than the others; it is the interaction of the products under one legal structure that offers customers and advisers new opportunities.
Sipps
In recognising the consumer synergies between Sipp and Wrap markets, Norwich Union has decided to service its in-house Sipp on the Lifetime wrap platform (wholly owned by Norwich Union).
The Norwich Union Sipp provides access to more than 1,000 investment funds provided by both Norwich Union and a wide range of leading external fund managers. As well as typical equity and bond funds, from April 2006 this Sipp will enable commercial property to be held (administered by Suffolk Life via the Lifetime platform).
The Sipp is highly accessible. Minimum lump sum investments start at £10,000 with no minimum on further payments. Regular savings start at £200 per month. There is no set up charge and the annual charge will depend on the type of investment chosen.
Existing clients
New customers will benefit from automatically being included in the Retirement Solutions system, but Norwich Union has not forgotten its two million existing policy holders. A myriad of different products have been sold by Norwich Union and associated companies since the 1970s.
Norwich Union is automatically updating existing product to comply with the post A-Day regime. The policyholder need not do anything. During 2005, Norwich Union wrote to its two million policyholders advising them of this, while emphasising that some people should seek advice and take further action.
Furthermore, around 300,000 existing personal pension and group personal pension customers in the Norwich Union Personal Pension Scheme will have automatic membership of the Retirement Solutions range, thereby benefiting from the single pension offering. This was made possible only after the Department of Work and Pension changed the rules.
Conclusion
Pensions are emerging as one of the big, public policy issues of the decade and the fact this has moved up the media and political agenda is good news.
The changes to be implemented within the A-Day changes will have a positive effect, but it is yet to be seen how smoothly these can be implemented.
Certainly, the Government has not helped by leaving the industry and public in the dark on many aspects, for example detailed rules on the new regime relating to inheritance tax and tax free cash are yet to be disclosed, this close to the 6 April.
It is likely that the detailed information will be included in the Finance Act, to be become law in early summer.
The industry has therefore had to rely largely on guesswork while getting its systems into place, so the transition may not be as smooth as expected.
It will be important that the industry guides the consumer through a period of uncertainty, and the lateness of the regulations does not cause any loss of confidence in the new pensions system.
Against this backdrop, two things have become clear. First, it is vital that the industry engage with the Government at all levels to ensure further legislation is introduced that benefits the customer - and that we get it right first time. Second, pension providers must do their part in ensuring their customers have access to quality simple products and are not disadvantaged by cumbersome complexity as part of the transition to the most radical changes in 50 years.
A-Day has been a catalyst for change in the pensions market - Norwich Union has taken advantage of the opportunity it has presented. More changes will follow but Norwich Union, as a major provider in the UK pension market, will have a stronger platform after A-Day to meet those challenges head on.
