Insurers and their trade association have complained that a possible a cap on exit charges for pension schemes is unnecessary, claiming most fees are reasonable.
Earlier today George Osborne revealed, while standing in on prime minister’s questions, that the government is set to consult on pension scheme exit charges to ensure that savers are not penalised if they wish to transfer out and access the freedoms.
The Treasury will begin next month to look at options to address any “excessive” early exit penalties, including the possibility of imposing a legislative cap on charges for those aged 55 or over.
There has been criticism of schemes which do not offer full freedoms and which will not waive early exit penalties, which are often built into older policies and can in extreme cases be as high as 20 per cent of the fund value.
Adrian Boulding, pensions strategy director at Legal and General, told FTAdviser the consultation was unnecessary and most of these fees are completely reasonable.
“Older plans were written with advice installment charges set out over the course of the plan all the way to the old state pension age,” he stated, adding that if insurers are found to be profiteering by adding anything else on at the end, then that would be unfair.
“But then the regulator already has powers to deal with any unfair practices, so there’s no need for extra legislation.”
Mr Boulding argued that most of the problems cited since April with people struggling to access freedoms have been caused by previous government legislation passed to protect those with older guaranteed annuity plans, which have to now take advice on transfers over £30,000.
He pointed out that many people will balk at the price of advice, while many advisers do not want to deal with so-called ‘insistent clients’.
“We could break this log jam if the government recinded this legislation and replaced it with a requirement on the ceding scheme to alert customers to the existence of guaranteed annuities.”
Mr Boulding added that this should settle down once it becomes apparent which providers will take drawdown on a non-advised basis.
Huw Evans, director general of the Association of British Insurers, said that with so many issues unresolved due to its rushed timetable, it is not surprising that the government has had to consult.
“We agree that further clarity is needed and have been calling for it for some time. But we reject any suggestions that the industry is putting up unnecessary obstacles to hinder customers exercising their pension options.
“It needs to be remembered that the vast majority of customers eligible for the pension freedoms will not face any early exit fee. Where one is charged it is not a penalty for leaving early, but to cover the costs of setting up the pension, particularly commission.”
The association explained that some older schemes may charge an exit fee, but this is not a penalty where customers leave the scheme early, rather it reflects expenses already paid by the provider, such as commission, in setting up the policy.
This would normally be paid back by the saver if they had stayed in the scheme to their retirement date as originally intended.
Fiona Tait, pension policy specialist at Royal London, commented that it would be better to put pressure on providers to offer reasonable charges than to use legislation.
“Royal London does not support artificial controls, such as charge caps, we believe that a competitive market is the most effective way to drive a good deal for customers.”
She added that the firm does not agree that people have to pay a fortune to access their pensions, giving the example of a £184 one-off charge to customers for setting up flexible access to their pension - with all subsequent withdrawals being free.
“We also believe that it must be very clear what is and what isn’t included in any charge cap. Plus consumers should be allowed to buy additional features, on top of what is covered in the basic charge, if they wish or are advised to do so - particularly, if the additional facilities would be beneficial to their particular circumstances.”
Meanwhile, a spokeswoman for LV said that they do not charge pension savers exit or transfer fees.
“We don’t believe it is fair to penalise people who did the right thing a long time ago by saving into a pension by putting financial barriers in the way that prevent them from making the most of the new pension freedoms.”
peter.walker@ft.com
