Watchdog says you CAN ditch rip-off pensions

MILLIONS of savers trapped in rip-off pensions should be allowed to ditch their plans without paying unfair exit penalties, the City watchdog has ruled.

Vast numbers of expensive pensions, investment and insurance deals sold before 2000 had exit penalties written into the contracts.

Savers with these types of plan stood to lose as much as half of their funds if they tried to switch to cheaper deals.

Now the Financial Conduct Authority (FCA) has ruled that firms cannot hold customers hostage using these types of terms and conditions.

Under new guidance, firms must regularly check savers’ investments and pensions charges – including exit penalties – and prove they are fair.

If they cannot show the charges are reasonable, companies may have to allow customers to move elsewhere or reduce the fees.

Insurers will also be barred from keeping customers in the dark about the amount they are creaming off in fees.

The City watchdog has asked firms to write to customers regularly to lay out in pounds and pence the costs levied on their pensions. Companies will have to track down customers who have moved home to let them know about the fees and charges on their pensions, the FCA said.

The move is a victory for Money Mail and could boost millions of customers’ retirement funds by thousands of pounds.

Tom McPhail, head of retirement policy at investment firm Hargreaves Lansdown, said: ‘Customers have entrusted these companies with their life savings. If pension firms are fail- charges are so large that they eat away all investment growth – meaning savers’ nest-eggs shrink over time.

But customers cannot move to a better deal because they will be hit with huge exit penalties. The FCA has already announced a cap on the amount insurers can charge savers for cashing in their pensions after age 55, meaning customers will lose no more than 1 per cent of the pot.

Under the shake-up announced yesterday, insurers will have to show more leniency to younger savers who want to boost their retirement funds by switching to cheaper plans.

In March a damning report by the FCA revealed that the fees levied by some firms rarely bore any resemblance to the real costs they incurred.

Yesterday, the watchdog said in a statement that it wanted to make sure that firms ‘did not take advantage of customers trapped unwillingly in long-term contracts’.

A spokesman for the Association of British Insurers said: ‘This new guidance will help to ensure that insurers’ ongoing work to improve governance and communications with customers holding older-style closed book products is in line with the FCA’s expectations.’