30th July 2015
The government has launched a consultation into pension transfers in a bid to put a stop to rip-off exit fees.
In terms of exit fees the government is looking at three options – a cap on all excessive early exit fees, a flexible cap in certain circumstances and a voluntary approach to restricting exit fees and charges
Experts have however warned that the latter, voluntary approach is highly unlikely to work given that the worst of the exit penalty offenders are from providers who no longer seek new customers, and as such there are no market forces to incentivise them to change.
Danny Cox, chartered financial planner at Hargreaves Lansdown urged that unreasonable and archaic exit penalties which have been a thorn in the pension industry’s side for many years and the government’s move should serve as “a wakeup call to those providers who still think pensions born in the 1990s are fit for the 21st century”.
He said: “The pension freedoms are all about choice and putting investors in control of their hard earned money. Too many pension providers aren’t offering the new flexibilities or making it sufficiently easy for their customers to take their money elsewhere. Providers should not restrict those who want to move to the low cost and highly flexible pensions of today.
“The barriers to pension freedoms need to be removed so that investors who have shopped around can move their money quickly and cheaply, without having to pay unreasonable exit penalties. We need a transparent and competitive retirement market where informed investors are freely able to shop around for the solutions which will suit them best.”
Chase de Vere certified financial planner Patrick Connolly has welcomed the news and asserted that any charge cap on pension withdrawals or transfers is a sensible idea. But he stressed that this should apply to all pension products and not just where pension freedoms are being used.
He highlighted that while only a relatively small number of pension policies impose excessive penalties, “these need to be eradicated entirely if we want to continue to build public trust in pensions”.
Connolly said: “In a free market providers should have the right to decide which options and flexibilities to include in their products, but in the interests of treating customers fairly they shouldn’t then impose high penalties if their customers decide to move elsewhere
“While it is pleasing that this issue is being addressed, it is important to note that exit penalties on pensions don’t just apply to those over age 55 or those using pension freedoms. Many other people are trapped in poor value pensions and yet face high exit penalties if they want to move elsewhere.”