The Government is set to consult and review the current legislation of exit fees from pensions. In particular the consultation taking place next month will look at options to address any “excessive” early exit penalties. These include the possibility of imposing a legislative cap on charges for those aged 55 or over.
The consultation will also look at making the process of transferring from one scheme to another much easier and quicker, to help people make use of the new pension freedoms which came into force in April. So far, government statistics have revealed around 60,000 people have taken advantage of pensions flexibilities, with many providers offering their customers a range of options. In figures disclosed to parliament yesterday, it was revealed £1 billion has already been withdrawn from funds since April.
Pensions campaigner Ros Altmann says: "The pension industry has completely failed to put customers at the heart of things and instead panders to its shareholders. It is acting purely in the interest of the pension company not in the interest of the consumer." Would you consider this to be a familiar or ongoing issue?
Exit penalties will apply to millions of pensions sold during the 80s and 90s relating to employer pensions, as well as individual personal pensions. Do you agree this is an unfair penalty to customers?
- Legal & General says around 30,000 policyholders with pensions taken out before 2001 will face charges for cashing in their pots early.
- Friends Life says it still charges customers who try to cash in their pensions early. It is reviewing its policy.
- Aegon says early exit fees will apply.
- Phoenix Life says most unit-linked policies do not have a fee if they are cashed in early, but some do. It says it is reviewing its policy,
- Aviva says one in ten of its back book of pensions have early exit charges.
- Equitable Life says it may make a charge on group pension schemes worth more than £2 million which are cashed in in bulk.
- Zurich Insurance applies early exit charges to some policies set up before 2000, where initial fees are spread across the life of the policy.
- Skandia says some of its older pensions, those sold before 1999 do carry exit fees for those who cash them in early.
- Prudential says there are no charges for cashing in your pension early, but those who have with-profits plans may face a deduction.
There will be variations to the actual amount of individual exit fees, but they range from as little as 2% to 3% to as high as 20%. Insurers say they cannot give individual examples of the penalties savers face. They claim they are too complex and are often tailored to individual policies. Do exit charges currently affect your customers? Recently, Friends Life was forced to write to 1,300 of their customers who had requested partial pension withdrawals, telling them that their flexi-access drawdown option was no longer going to be offered due to the complexity of their pension back book. Do you think was unfair of them?
Stephen Jensen, a retired customer services manager from Saltash in Cornwall, faces losing 11% of his £13,000 pot with insurer Abbey Life. This could occur if he moves his pension, even though he is only 4 years off the retirement age in his policy. From next year, the 61 year old is eligible to take his pot under the new pension rules. However, Abbey Life management charges of 5.25% are being deducted from the bulk of his fund every year. He signed up to the pension in 1987 when he started a new job, but only remained with the firm for 2 years. The value of his fund currently is £13,337. However, if he were to cash it in he would only receive £11,973. What would you advise he do?
Please let us know your views by leaving a comment below.
