Proposals to prevent people in occupational schemes facing exit charges for accessing their pensions have been launched by ministers.
In a consultation paper released today (26 May), the Department for Work & Pensions stated in order to make it clear market value adjustments would not be included in an exit charge cap.
To avoid any potential ambiguity, the DWP stated it will specify in the Financial Services and Markets Act 2000 that MVAs will not fall foul of a pension charge cap.
The paper stated MVAs for occupational pension schemes will be defined as “adjustments generally found in with-profits, which are offered by insurers directly to members via personal pension schemes, or indirectly via occupational scheme investments.”
In July 2015, HM Treasury launched a consultation on transfers and early exit charges, in which it made it clear it did not consider MVAs to be exit charges for the purposes of the Financial Conduct Authority cap.
At that time, the government stated while they may appear as a reduction to the consumer, the aim of an MVA is to return an individual to their ‘share’ of the pension scheme at the point at which they exit.
This is opposed to a nominal figure that may be quoted to them in their pension statement.
The regulations proposed today (26 May) will specify an adjustment to the value of a member’s benefits will not be treated as an early exit charge if the adjustment either:
• Reflects a difference between the indicative value of a member’s benefits (for example, the value of a member’s benefits under a pension scheme as last communicated to the member prior to the point of surrender) and their market value at the point of surrender, or;
• Is made to smooth market fluctuations, or as a consequence of the previous application of adjustments to smooth market fluctuations, and providing that certain conditions are met. The proposed conditions are that the adjustments are made both;
• For the purpose of ensuring the value of the scheme is fairly distributed between its members;
• In a manner which aims to adjust the value of the member’s benefits in order to reflect the member’s asset share, and;
• In accordance with generally accepted actuarial practice and all relevant regulatory requirements.
Pensions minister baroness Ros Altmann said: “These changes are about giving everyone who has worked and saved hard for their retirement a fair deal by removing the final barriers to the pension freedoms.
“I encourage the industry and all those with an interest to contribute to this debate,” she added. The consultation runs for 12 weeks, alongside similar work from the FCA on capping workplace pension exit fees.
Daren O’Brien, director at Aurora Financial Solutions, said MVAs have always been a sticking point for advisers and clients, because they are seen as unfair.
He said: “An MVA should not be included - it isn’t a charge it is fund performance - it is not technically a charge.
“In general I agree that there shouldn’t be high exit charges and a 1 per cent cap is still pretty high when you see some pension valuations.”
ruth.gillbe@ft.com
