The government does not propose to consider the position with regard to MVAs as part of the consultation, but should evidence emerge that they are being applied by occupational pension schemes in addition to, or instead of, using the process for calculating the cash equivalent of the benefits, it will investigate the issue further.
The document also mentioned terminal bonuses – an additional bonus added to a with-profits policy, specified at the end of the contract and paid as a percentage at the discretion of the provider. These can vary from year to year, by provider, and based on the performance of the underlying investments around the end of the policy.
There may also be a need for providers to improve their communication of these deductions to their members, stated the government, as studies show UK consumers have a limited understanding when it comes to more complex finance terminology. As such, providers should take additional steps to make the valuation sent to members simpler and more transparent, explaining why particular fees and charges have been incurred.
5. Prevalence of exit charges.
Again, the government conceded there was limited consistent research across the market regarding the prevalence of exit fees, which in many cases relate to policies dating back 20 to 30 years or more.
“Although the majority of these schemes are now closed to new members, a significant number of these plans continue to operate for existing customers,” it added.
These assertions were backed by an independent review into legacy workplace schemes published in December found that roughly 7 per cent (£4.8bn) of assets under management in legacy schemes existed where savers would face charges for early exit. Of this, £3.4bn (nearly 60 per cent of funds) is in schemes with exit charges of 10 per cent or more.
“The evidence described above provides relatively good coverage of the workplace market,” it stated, adding “however, the government is keen to obtain further evidence.”