Standard Life believe the dramatic cumulative effect of this increase could drive a ‘capacity crunch’ in the market. The group has prepared its platform drawdown operations for the significant increase in volume from April 2015.
Alastair Black, Standard Life Head of Income Solutions, says:
“We expect at least 5 times more people in the UK opting for income drawdown from April next year. But by the following year you not only have those extra people in drawdown – you have another batch of new customers going into drawdown at 5 times more than current figures and so on. So a provider who currently deals with 2,000 drawdown customers today will be dealing with 10,000 next year - an extra 8,000. By 2016, this becomes 20,000 instead of 4,000 – 16,000 extra to serve. In 2017 they have 30,000 instead of 6,000. The sheer volume of new customers needing serviced ramps up rapidly.”
Drawdown has remained a niche product for most platforms despite becoming more of a mainstream option 10 years ago.
David Tiller, Standard Life Head of Adviser Platform Propositions, said:
“Platforms’ operational capability will be sorely tested by the rapid growth in drawdown business. Many platforms have yet to make the transition to fully clean and unbundled share classes and are having to devote considerable resources to the ongoing conversion in the run-up to the sunset clause in April 2016.
"Having to also build additional scalability to cope with drawdown demand will put even more pressure on their systems. Standard Life Wrap is not only fully unbundled, we’re also market leaders in drawdown and have invested to automate and streamline processes to ensure its effective delivery on platform.
“The process for setting up and managing drawdown is much more involved than setting up an annuity. Assets need to be invested and often complex withdrawal arrangements made – this is not a ‘light touch’ process for platforms. The assets moving into drawdown will also require conversion on many platforms, so the potential for delay and disruption when drawdown is requested could be high for platforms that aren’t prepared.
“A platform’s ability to pay accurate retirement income on time should be rigorously assessed through due diligence processes. For clients accessing the new pension flexibility the process should operate as smoothly as receiving a monthly salary. There are also tax implications for clients with providers which don’t have the capability to calculate and pay out net income after tax. Advisers will want to be confident that they are not left to manage their clients’ tax return unnecessarily. “
