Regulation  

FCA numbers prove exit fees aren’t rife

FCA numbers prove exit fees aren’t rife

Industry experts state that regulatory data which revealed that 84 per cent of over 55s eligible to access the pension freedoms have not been charged exit fees in the first three months of the pension freedoms, prove that despite headlines exit fees are not rife in the industry.

The FCA’s analysis of pension freedoms data, published yesterday (16 September), revealed that 84 per cent equates to 3,416,000 of consumers.

Of the remainder, 385,000 (around 9 per cent) of consumers aged 55 or over would face a charge of 0 per cent to 2 per cent, 165,000 (4 per cent) would face a charge of 2 per cent to 5 per cent and around 147,000 (around 3 to 4 per cent) would face a charge greater than 5 per cent.

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David Brooks, technical director at Broadstone, said: “There is much wailing and gnashing of teeth about charges.

“It would seem, again, that this may be overstated. That isn’t to say people are not charged too much but the situation is not rife in the industry.

“As an industry we should be shouting about that. Behind the headlines many access their pension with little fuss and relatively quickly, many around 16 days.”

Neil Gillivray, head of technical support at James Hay Partnership, told FTAdviser he was surpised that the figures were as low as they are.

“I thought the figures would be higher than that from the results that have come in from the Association of British Insurers.

“Of the funds in excess of £250m, the largest fund was just short of £1.75m - a tiny per cent of large funds, 75 per cent of them were non-advised.

“It does beg the question why people would want to do it but it only takes a very small number - we are not seeing anything like that.”

He added that people with larger funds are being “more conscientious”, stating that as they have been advised they are taking a more cautious approach”.

The most commonly cited reason for the existence of exit charges was to cover outstanding initial expenses and/or initial commission, the FCA’s analysis found.

Steven Cameron, regulatory strategy director at Aegon said: “I’m very pleased to see that the FCA has identified the reason for exit charges being present, bearing in mind that there are sound reasons for their exit charge.

“As expected there are only very few individuals who would expect higher than an exit charge of 5 per cent.”

Claire Trott, director at Talbot and Muir, said the charges to withdraw benefits can take many forms and especially when looking at drawdown options, there are a number of processes that need to be gone through, irrelevant of the fund size, so the smaller the fund the higher the percentage charge is likely to be.

“Drawdown has historically been used by those with larger pots and the charging structure for many products haven’t changed because the processes haven’t changed either.

“This was always going to be a risk, at least in the short term, for more people with smaller pots accessing drawdown options that charges involved would be disproportionate to the benefits taken.