Personal Pension  

Industry questions FCA approach to pension exit fee cap

Industry questions FCA approach to pension exit fee cap

The industry has broadly welcomed the Treasury’s announcement yesterday that it will introduce a cap on pension scheme exit fees, although many have questioned what level it will be set at.

The new duty, introduced through legislation and to be enforced at the regulator’s discretion, will form part of the response to the government’s pension transfers and exit charges consultation.

Gillian Guy, chief executive of Citizens Advice, said many people find making decisions around their retirement finances difficult and the prospect of a “sky-high” exit charge could put them off making the choice which is best for them.

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Its own research found more than two million consumers could face a pension exit fee of over £50, including almost 40,000 people who could be hit with a charge of more than £5,000.

“We would encourage the Financial Conduct Authority to set the cap at no more than £50, which is enough to cover the administrative costs for providers,” she added.

Nutmeg’s chief executive Nick Hungerford called exit charges an “unnecessary and sly” way to make money from customers that have decided to take action with their pension, which deter customers from switching to services that are better suited to them, or accessing their long-term savings.

He said: “As such they prevent effective competition in an industry that desperately needs to restore trust and they exasperate customers’ frustration that even doing the right thing results in unfair treatment by financial service providers.”

Law firm Pinsent Masons’ head of pensions Carolyn Saunders pointed out that for providers, this represents yet another change to the terms of their relationships with their consumers.

“Although not as radical as the adjustments resulting from the introduction of the pensions freedoms, it is another step along the road to making the private provision of pension products more like a public service.”

Andrew Pennie, marketing director at Intelligent Pensions, said care needs to be taken that legally binding contracts are not simply ripped up, at the detriment of those savers who are not looking to transfer.

“It is impossible to say how much impact removing excessive exit fees will have on pension freedoms and encouraging retirees to shop around for the best retirement income solution,” he continued, adding that the FCA found 58 per cent of drawdown investors and 64 per cent of annuity purchasers remained with their existing pension provider.

“These figures feel way too high and hopefully the removal of excessive exit fees will be a catalyst for more people to shop around for the best retirement solution and seek regulated advice,”said Mr Pennie.

Martin Tilley, director of technical services at Dentons Pension Management, was less than impressed by the chancellor’s changes.

“This is another example of an ill-informed government pandering to the messages from tabloid journalism. Trying to pass blame to the ‘rip off pension providers’ who are simply imposing disclosed contractually due fees when it is the client who has broken the contract by leaving the contract early.”