Pensions meltdown threatens savings revolution-Dan Hyde

As the first major provider comes clean about the problems of adapting to the new pensions regime, will a crisis engulf all savers?

Toby Strauss, chief executive of Scottish Widows, says the entire pensions industry is on the verge of a customer service disaster Photo: Graham Trott

Millions of savers face lengthy delays in accessing Isas, retirement funds and life cover as the insurance industry stands on the brink of a customer service meltdown, Telegraph Money can disclose.

In some cases savers face hours on hold on the telephone – and then a month-long wait before their money is paid out.

Toby Strauss, the chief executive of Scottish Widows, one of Britain’s biggest insurers, today tells of his regret over “unacceptable” service levels at his firm in recent months, and says other pension providers are also struggling.

Scottish Widows, which has two million pension customers, admits it has reached “breaking point”. Mr Strauss blames the pension freedoms announced in March for creating a frenzy of calls to the company. Staff and systems have been unable to cope, he says.

In an article for Telegraph Money (below) he says: “It has been an unprecedented three years in the pensions world – with a roller coaster of changes.

“In the absence of any breathing space, we have concerns that the industry is in danger of reaching – and in fact breaching – its capacity to cope. Many of our own processes have struggled in the wake of the ongoing changes and as a result our service levels are in some areas falling short of the high standards our customers expect of us.”
In a plea to the Government, he asks for a moratorium on new pension laws to allow the industry to “develop new processes and systems” and employ more staff. Mr Strauss has set aside £20m to upgrade computer systems, start training programmes and increase call centre staffing.
Scottish Widows is the first high-profile firm to admit to struggling to cope with the pension reforms announced in the Budget by George Osborne.
The Chancellor said in March that no one would be forced to buy an annuity with their life savings. Instead from next April people will have full discretion over their retirement funds after age 55.
This has led to a large spike in the number of customers ringing insurers’ call centres. At Scottish Widows, the deluge has created a backlog of cases, delaying even the most basic of requests.
Telegraph Money reported last month that its pension investors faced three-week delays to get hold of their own money. We warned that the backlogs could worsen when next year’s reforms kicked in.

^{How we disclosed the delays last month}
Mr Strauss agreed that the issues were more widespread than had been feared. Hundreds of customers, financial advisers and employers have been affected, regardless of the type of query.
The company said it had already answered more calls this year than it did in the whole of 2013. Last year the average call took five minutes. This has more than doubled to over 10 minutes because of the complexity of the questions.
Customers are routinely waiting more than an hour on hold. A “significant number” of customers and financial advisers had hung up in frustration, a spokesman said.
Scottish Widows had already planned to increase the number of staff by a quarter to cope with new rules that force every company to enrol employees automatically into pensions. The company is one of the largest providers of the workplace pensions being used for so-called “auto-enrolment”.
In the aftermath of the Budget it has decided to hire an additional 400 people in its call centres. Around 250 will solely deal with inquiries about personal pensions and the retirement freedoms.
The Association of British Insurers (ABI) said the industry was also weighed down by new EU rules and investigations by regulators. Currently, the Financial Conduct Authority is reviewing products sold before 2000 and assessing annuity sales practices.
A spokesman for the ABI said: “The long-term savings industry has undergone significant regulatory and legislative reform in the past two years. The industry is working flat out to apply these large-scale changes, which will in time deliver benefits and improved services to consumers. This is a crucial time for customers – it is vital providers are able to get it right.
“We hope for a period where regulators and policymakers consider the overall impact of further change when setting their priorities.”
'I realise the impact on customers’
By Toby Strauss, chief executive of Scottish Widows
It has been an unprecedented three years in the pensions world – with a roller-coaster of changes – but ultimately I believe that a fairer, more transparent world is being created for our customers.
Since I joined Scottish Widows in late 2011, we have dealt with the implementation of the Retail Distribution Review, the roll-out of automatic enrolment, government caps on pension charges and the changes announced to annuities in the 2014 Budget. All of which give savers greater transparency, flexibility and choice.
In the absence of any breathing space, we have concerns that the industry is in danger of reaching – and in fact breaching – its capacity to cope. Many of our own processes have struggled in the wake of the ongoing changes and as a result our service levels are in some areas falling short of the high standards our customers expect of us.
I fully appreciate the impact that our service issues have had, and are having, on our customers and we are working hard and investing significant resources to ensure that we fix this as quickly as possible. Scottish Widows is investing tens of millions of pounds over the coming months and years to make us better placed to deal with this new world.
This involves new customer service staff, upgrading IT systems and investing in training programmes. We are working with financial advisers, employers and the payroll industry, where we are also seeing capacity challenges.
The most recent Budget changes will enable consumers not only to have greater flexibility with their savings but also to have an ongoing dialogue with their adviser. In the future, retirement won’t be a one-off conversation.
So to deliver real benefit to consumers, these changes must be allowed to bed in before any further change is considered, so that we can ensure we have robust approaches in place to help our customers with their financial decisions.

Culled from The Telegraph