Personal PensionJun 18 2015

Treasury asks FCA to consider ‘unfair’ exit fees TCF breach

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Treasury asks FCA to consider ‘unfair’ exit fees TCF breach

A letter to the Financial Conduct Authority’s chief executive from the Treasury chief secretarty on behalf of the government has asked the regulator to consider whether some exit fees faced by consumers seeking to access pension freedoms could breach Treating Customers Fairly rules.

In an exchange of letters published by the government, Harriett Baldwin, economic secretary to the Treasury, said while a consultation into the issue, announced yesterday, is ongoing the FCA should still be on the lookout for instances where firms levy “unnecessary and unfair” charges.

Yesterday, (17 June) the chancellor announced a consultation on exit charges to ensure that savers are not penalised if they wish to transfer their pension to access pension freedoms.

Launching later this month and concluding in August, it will look at options to address any “excessive” early exit penalties, including a possible legislative cap on charges for those aged 55 or over.

Some older policies can levy as much as 20 per cent of the fund value to exit, especially on policies where set-up charges and initial commissions were rolled into ongoing premiums over the life of the policy.

“In the meantime, I trust that you [the FCA] will make clear to firms that putting unnecessary and unfair barriers in the way of consumers seeking to legitimately transfer their pension savings is not acceptable,” Ms Baldwin stated.

“Where this is found to be the case you will no doubt wish to consider whether this could be regarded as a breach of their responsibility to treat customers fairly.”

She also welcomed the regulator’s support in assessing the process and timing barriers which may face consumers seeking to transfer, to help to inform the design of a new standardised process.

“In particular, I am concerned that some providers may not be allowing consumers to access their savings even if they have met the regulatory requirements to seek advice and I welcome your agreement to investigate this further.”

In the wake of the consultation announcement, several insurers complained that a possible a cap on exit charges for pension schemes is unnecessary, claiming most fees are reasonable.

So far government statistics have revealed that 60,000 people have taken advantage of pensions flexibilities with many providers offering their customers a range of options. In figures disclosed to parliament yesterday, it was revealed £1bn has been withdrawn from funds since April.

However, not all providers are offering the full range of access options and there has been criticism of delays, excessive barriers being put in the way of savers or of costs being imposed.

Most recently, Friends Life was forced to write to 1,300 customers who had requested partial pension withdrawals, telling them that the flexi-access drawdown option was no longer going to be offered due to the complexity of their pension back book.

Writing in the Telegraph over the weekend, the secretary of state for work and pensions Iain Duncan Smith stated that some savers have been effectively “handcuffed”, pointing out to insurers that “it is their money that you hold, not yours”.

Mr Duncan Smith expressed concern that “some firms still appear to be dragging their feet”, adding that it is their responsibility to sort this situation out and look after customers as he confirmed ministers would work with regulators to tackle the issue.

A spokesperson for the regulator told FTAdviser: “It is in the interest of all consumers that the retirement market works well following the pension reforms. We are already monitoring how firms have been implementing the changes and will be gathering further data in the next few weeks.”

peter.walker@ft.com