PensionsJul 1 2016

Old Mutual caps pension exit fee

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Old Mutual caps pension exit fee

Old Mutual will introduce a 1 per cent cap on exit fees for all customers aged 55 plus, and for those in “older style” pension contracts, months before the mandatory date for reducing the charge.

In May the Financial Conduct Authority announced that, from March 2017, exit charges would be capped at 1 per cent of the member’s pension pot.

But in a statement today (1 July), the life company said it would implement the change in the fourth quarter of 2016.

The change will affect around 3,400 customers, and would bring the average exit charge on Old Mutual pension products to 85 basis points.

More than 85 per cent of Old Mutual Wealth’s Heritage pension customers were “not subject to any exit charges”, according to a statement from the provider.

Steven Levin, chief executive of Old Mutual Wealth’s investment platform, said: “We have relatively few pension contacts that attract an exit fee.

“The FCA has clearly set out what it expects from providers. We support this direction and, rather than wait until the March 2017 implementation date, will introduce the 1 per cent cap as soon as is practically possible.”

Old Mutual’s early introduction of the cap comes after back in March Prudential reduced charges by an average of 15 per cent across its workplace group personal pensions and where exit charges applied, these were removed.

Back in March Zurich also announced it was set to cap pension charges following its inaugural Independent Governance Committee (IGC) report.

Over the course of 2016, a cap is being applied to charges over 3 per cent. However, this was just a “holding position,” according to Laurie Edmans, chair of Zurich’s IGC.

Graeme McColgan, a financial planner with Million Plus Financial Planning, welcomed Old Mutual’s announcement, saying it was “nice to see providers acting quickly, rather than leaving it to the last minute”.

“For the way the industry has moved on since these products were created, it’s madness to think there are still 6, 7, 8 per cent exit fees,” he said.

Mr McColgan said the 1 per cent cap was probably reasonable, although he said there should also be a pound limit to avoid unfairly charging very high balance transfers.

He said the incredibly high exit fees on some products had deterred some of his clients from moving funds. However, he said the majority were not affected because the products charging high exit fees were old.

james.fernyhough@ft.com