Calls for exit fee comparison on legacy products

Calls for exit fee comparison on legacy products

Pension provider Scottish Widows has called for exit charges on legacy products to be disclosed so that it is easier to determine if clients are receiving value for money.

In its response to the regulator's consultation on expanding the remit of Independent Governance Committees (IGC), Scottish Widows stated that its IGC had previously called for exit fees on legacy products to be removed and that the pension industry should be asked to disclose all legacy exit fees.

In its consultation, which closed last week (July 15), the Financial Conduct Authority had invited views on whether it should be more prescriptive in its rules and guidance on how value for money should be assessed by IGCs and what legacy pension products should be compared with when assessing value for money.

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Babloo Ramamurthy, chair of Scottish Widows’ IGC, and Pete Glancy, head of policy and positioning at Scottish Widows, wrote: "In benchmarking legacy products a comparison of exit charges will be an important determinant of a customer’s ability to achieve value for money, in relation to the pension pot which they have accumulated."

Romi Savova, chief executive at PensionBee, agreed disclosure of exit fees would help IGCs identify if a client is being overcharged, while making it easier for clients to switch provider.

Ms Savova told FTAdviser: "The presence or absence of exit charges is an important consideration for consumers achieving value for money.

"IGCs are increasingly expected to help protect consumer interests in a broader sense and switching is a fundamental right in defined contribution pensions."

She added: “IGC analysis of exit fees would help inform what is out of step with the market, ultimately leading to providers reducing exit fees."

But Tim Morris, independent financial adviser at Russell & Co, does not see the value in pushing for exit fee comparison, as few providers still charge exit fees.

He said: "It is vital that any fees are clear and transparent. This is a given nowadays.

"There are very few providers who charge exit fees. For this reason, I don't see the value in collating this information. It's more important to ensure those providers who do charge a fee clearly state what it is."

In 2015, the FCA found that approximately £26bn of pension savings was potentially at risk of poor value for money and it was recommended that providers agree actions with their IGCs to reduce costs and charges per year to 1 per cent or less.

Following this it introduced a 1 per cent cap on exit charges for existing workplace pension customers over the age of 55 in 2017.

The regulator's Investment Platforms Market Study, published in March 2019, the proposed a ban on administrative exit fees on platforms.

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.