Life companies have begun capping exit fees on their pension products, pre-empting the result of a consultation by the regulator on the charges.
Standard Life said from January thousands of its individual and workplace pension savers had any exit penalties they faced limited to 5 per cent.
Prudential has also revealed it will be implementing a cap, of “less than 5 per cent”, with further details due in its inaugural Independent Governance Committee report.
LV= has also hinted it will bring in a cap earlier than required by the government.
The life companies have been spurred to act by Chancellor George Osborne announcing in January that the Financial Conduct Authority (FCA) would undertake a consultation on the charges.
Pension early exit penalties will be limited from March 2017, Osborne said, but the FCA is currently consulting on the issue and has yet to set a level, expected in the next few months.
Scottish Widows had led the charge in making its decision to cap exit fees on workplace pensions public, announcing the move yesterday.
Jamie Jenkins, head of pensions at rival Standard Life, said his company decided to act after internal discussions, prior to the announcement by Osborne.
If the FCA’s consultation findings requires further changes on charges, Standard Life will make them in due course, Jenkins said.
Jenkins said he did not believe exit charges are “inherently wrong”, but admitted, in light of pensions freedoms significant fees could be “quite restrictive”.
Less than 7 per cent of Standard Life’s pension savers are impacted by exit charges, the company said, on products from the 1980s and 90s.
Standard Life said the average charge is less than 1 per cent of the fund value, and in return customers have benefitted from a lower annual management charge and traditionally most will have remained invested until their retirement date.
Pension providers had not shown any intention to cap exit fee charges prior to government intervention.
But John Perks, managing director, retirement solutions at LV=, said the clampdown on “excessive” exit fees is the “right thing to do”, as these are one of the reasons people aren’t shopping around at retirement.
“At LV= we only have exit fees for a limited number of legacy pensions. To help create a more transparent world for our members, we are committing to the removal of all our residual exit fees by the end of 2017, and are actively looking at whether we can do this sooner,” he said.
Royal London said in a statement: “Royal London constantly reviews the number of customers impacted by exit fees and has identified that 97 per cent of members who accessed their pension between April 2015 and 31 December 2015 did not incur an exit fee.
“Royal London will ensure that if a deduction needs to be made it is fair and only the underlying costs are recovered. Royal London does not profit from exit charges.”