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28 July 2015 last updated

Legal & General delays mean pension transfers now take over a month

With the new pension rules from April 2015 pension provider Legal & General has been unprepared for the high demand from people retiring and taking their benefits resulting in delays of over a month to access or transfer pension benefits.

In the UK 65,000 people have taken £1 billion as cash from their pensions requiring extra man hours from providers to handle the extra demand.

Even though the new pension freedoms were expected a year ago, it seems Legal & General has failed to anticipate the impact and make provisions to hire extra personnel to cope with the demand.

Legal & General are struggling to cope extending their turnaround times from a respectable 10 working days to up to 45 working days, now among the worst in the pension industry.

Other providers, such as Scottish Widows, had anticipated a surge in demand from April and had taken measures in January to ensure high service standards.


 
Legal & General with transfer delays
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Scottish Widows hired 400 extra staff

The decision in January to hire an additional 400 staff was taken by chief executive Toby Strauss to better engage with customers as they expected three times the normal volume of customer engagement from April 2015.

The new staff have been handling the surge of people engaging with Scottish Widows about their options including taking their funds as a cash sum less tax at their marginal rate, an annuity or open market option from another provider.

This has resulted with a fast and efficient service to people taking their benefits with open market options transferred in 7 working days.

In contrast Legal & General has the resources to cope with the extra demand in the past three months but remains unable to solve their turnaround times.

Risks of lower income for people retiring


The slower turnaround times from Legal & General increase the risk that annuity rates will fall in the next month before the funds are transferred to the new provider.

There is also the risk that equity markets will fall, such as the recent falls in the FTSE-100 index during the Greece crisis, reducing the value of pension funds and therefore income from an annuity.

Annuity rates are near an all time low and for our benchmark example of a person aged 65 with a fund of £100,000 the current annuity based on single life and level basis is currently £5,781 pa. This compares to rates before the financial crisis in July 2008 when the same fund could provide an income of £7,908 pa, a fall of 26.9% or £2,127 pa.

In terms of lifetime income, the Office of National Statistics (ONS) would expect a male to live for 17.3 years and he will have £36,797 less over his lifetime. For a female she can expected to live for 20.4 years decreasing her income by £43,390.

As an alternative to buying an annuity now if is possible to consider
flexi-access drawdown which would provide an income and the fund remains invested and available to buy an annuity at a later date.

For a lower risk option a fixed term annuity would also provide an income and a guaranteed maturity amount at the end of the term selected from three years and more. All these flexible options allow you to take the fund as cash, an annuity using the open market option from any provider or any other option available at that time.

News related stories:
New pension rules see £1 billion of funds removed at retirement
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Pension savers to receive free guidance when taking their benefits
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