Personal Pension  

Providers defend u-turn on exit charges

Providers defend u-turn on exit charges

Providers have defended their exit charges, following interventions by independent governance committees which left many of them u-turning on their former positions.

ICGs were introduced in 2013 after an highly critical Office of Fair Trading review into the defined contribution pension market.

They were given new duties to investigate costs and charges from April 2015, and after a series of damning reports, in March a number of providers changed their stance on pension exit charges.

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Scottish Widows has now removed all exit fees across its workplace pensions. But head of industry development Pete Glancy defended historic charges, saying older products had more complicated cost structures than are seen today.

“At the time these products were sold, there was not a great deal of movement of money between providers and by keeping up front charges as low as possible, customers had more of their money invested at the outset benefiting from investment growth and its compounding effect over time,” he said.

Mr Glancy said Scottish Widows had already removed the “most significant” exit charges in 2014.

“However, given the government’s personal responsibility agenda, we felt the time was right to remove any remaining barriers which prevented customers from executing decisions which they might make,” he said of changes to the provider’s fees made in March.

Prudential reduced charges by an average of 15 per cent across its group personal pensions and where exit charges applied, also in March.

A spokesperson said the charges represented normal market value at the time the policies were taken out, also defending the provider’s change in stance.

“With the introduction of pension freedoms and other regulatory changes, the pensions landscape is now dramatically different. We have therefore reviewed our approach in the context of the current market,” they said.

Royal London agreed with its independent governance committee to review workplace pensions and reduce or remove those charges which were not considered fair value on contract by contract basis rather than impose a blanket cap. According to the provider, these were exclusively on legacy arrangements.

Fiona Tait, pension specialist at Royal London, said their position on which she branded “artificial controls” has not changed, arguing they do not support price caps and believe a competitive market is a more effective way to drive a good deal for customers.

“We are also concerned consumer value is not simply conflated with price, but considers the overall structure of the product and the outcomes it is seeking to deliver,” she said.

Ben Gaukrodger, savings policy manager at the Association of British Insurers, also defended its members.

Providers are committed to delivering value for money for their customers and constantly review their charging structures, including exit fees, he said.

Andrew Pennie, marketing director at Intelligent Pensions said change hasn’t necessarily been easy for companies with older contracts.

“Policy contracts can’t always be easily broken and we shouldn’t forget companies do have a duty of care to their shareholders as well.”