Providers including Aviva, Scottish Widows and Standard Life have revealed they must calculate the cost of the Financial Conduct Authority’s (FCA) proposal to cap exit fees at 1 per cent.
Last week the regulator proposed, that for existing contract-based personal pensions, including workplace personal pensions, exit charges would be capped at 1 per cent of the value of a member’s pot.
The consultation on capping early exit pension charges also stated that firms will not be able to apply any exit charge for personal pension contracts entered into after the new rules come into force.
The majority of providers who spoke to Financial Adviser following the announcement of the proposed cap, said the bulk of their pension contracts had exit fees of less than 1 per cent.
An Aviva spokesperson said that while the vast majority of their pensions do not carry any early termination charges, the provider had introduced a 5 per cent cap on the small proportion of pension policies that carried charges above that amount.
David Lascelles, head of propositions at Scottish Widows, said his business had removed exit fees across workplace pensions and was now reviewing the exit charges on individual pensions.
A spokesman for Zurich said early exit charges were not a source of profit for the provider.
Jamie Jenkins, head of pensions strategy at Standard Life, claimed it was one of the first providers to cap exit charges.
He said: “Fewer than 7 per cent of Standard Life’s pension customers have exit charges and, for those that do, the average is less than 1 per cent, so it has limited impact.”
A Prudential spokesperson said the vast majority of Prudential UK’s personal pension customers would not pay an early exit charge.
Steven Cameron, pensions director at Aegon UK, called exit charges “a hangover from legacy charging structure designs”.
David Smith, director of financial planning at Tilney Bestinvest, said: “Obviously, there are instances when the fee is not so justified; instances whereby a provider will charge simply because they are missing out on future annual management charges, or a saver is paying for the commission takings of a broker.
“Each individual case should be viewed on its own merits, reviewing whether the penalty is appropriate, or over and above what could be justifiably levied.”