A number of pension providers are leaving it to the last minute to reduce exit fees levied on withdrawals from contract-based pensions ahead of the looming deadline.
A 1 per cent charge cap on early exits from contract-based pensions is due to come into force on 31 March, yet with just weeks to go until that deadline many large pension providers are at various stages of implementation.
Exit penalties are still applied by some of the largest pension providers, meaning that individuals looking to use the pension freedoms to access their savings could unknowingly be subject to high fees.
Jeannie Boyle, technical director and chartered financial planner at EQ Investors, said that it is “disappointing but not surprising” that a number of firms are waiting until the deadline to lower exit fees, which provide an “unnecessary barrier on consumers wishing to move or consolidate their pensions”.
“Providers must inform consumers that these changes are only a few weeks away. Unfortunately not everyone can wait,” Ms Boyle said.
Exit fees are a common feature applied to millions of pension policies that were taken out in the 1980s and 1990s and according to experts are typically around 2 per cent to 5 per cent deducted directly from the pension pot.
Lower fees aim to help savers aged over 55 avoid being penalised for using the pension freedoms to take money out of their savings, but a number of the largest pension providers have yet to fully enforce the change.
Aegon, Aviva, Royal London, Zurich and Prudential are still in the process of moving towards the 1 per cent fee cap, but all were confident this would be achieved by 31 March.
It could be a difficult process for large pension providers to meet the deadline in time, as years of consolidation in the industry have resulted in complicated business structures.
Keeping the exit charges in place for as long as possible is also good for revenues, some pension experts point out.
“There’s two ways of looking at it – one is that companies with big books of legacy business will find it difficult to change systems quickly, particularly where different businesses have been amalgamated into one firm,” Ms Boyle said.
“The more cynical view is that some companies, particularly those with closed books, are looking to preserve their revenue. The reduction in exit charges plus pension freedoms must be hurting profitability.”
Communication of planned changes is also a struggle for large scale providers, according to Scott Gallacher, chartered financial planner at Leicester-based Rowley Turton.
“Unfortunately it’s not unusual that providers don’t always inform clients of changes in the pipeline or policy benefits,” Mr Gallacher said.
“I suspect many consumers will lose out by unwittingly incurring unnecessary penalties by taking their benefits before 31 March.”