The majority of companies who charge their clients when they decide to switch their pension to another provider could bypass the proposed ban from the regulator on exit fees, PensionBee has stated.
In it response to the Financial Conduct Authority's consultation on the Investment Platforms Market Study, published in March, the pensions consolidator stated the watchdog was primarily seeking to limit or ban administrative exit fees, not so-called product-related exit fees.
This means that from the major providers, only Hargreaves Lansdown will likely be captured by the FCA’s pending action.
The other providers, who account for the majority of exit fees observed (60 per cent) by PensionBee, are likely to evade the cap due to the way their exit fees are defined, often referred to in the industry as ‘product exit fees’, the firm stated.
The watchdog does not, at this stage, intend to extend the proposal of a ban to product-related exit fees.
Product exit fees include market value reductions in with-profits policies, as often found with Phoenix Life, or deferred advice fees, as charged by St. James’s Place Wealth Management, for example, the consolidator noted.
In its consultation, the FCA defined exit fees as charges that are imposed by platforms and comparable firms on consumers, following a request to disinvest or to transfer their assets to a new service provider.
Typically, these fees take the form of a fixed cash amount or a percentage of the assets to be transferred out.
In addition to exit fees of this type, some firms apply other charges associated with exit, including, for example, account closure fees, withdrawal fees and ‘in-specie’ transfer fees, the FCA officials said.
"This is because competition between retail investment product providers was not the focus of this project and we did not seek information on product-related exit fees and their effects on competition," the paper stated.
In response to PensionBee's comments, a FCA spokesperson said: "We think that exit fees should be banned and we have been seeking views on how that can work in practice. Firms will not be able to redesign the fees they charge in order to get round any new rules we introduce."
PensionBee’s focus groups have shown that consumers are "well aware" of exit fees in general and are "very afraid" of them when it comes to considering their pension options.
Nevertheless, after an analysis of 16,271 pensions in 2018, the consolidator concluded that exit fees occur in only 4 per cent of pensions. Some 98 per cent of exit fees are under £5,000 and 49 per cent of exit fees are under £100.
"However, there are a handful of egregious exit fee instances that impact the national consciousness," it added.
The largest exit fee PensionBee witnessed on a pension uploaded in 2018 was £16,968.
The pension consolidator is advocating for a ban on all forms of exit fees.
It stated that while present in a small proportion of all pensions, these charges can be large, and "undermine consumer confidence in the pensions industry and deter people from switching when it may be in their best interests to do so".