The Daily Telegraph - Saturday - Money
Exit strategy
‘It costs £13k to move my pension’
Pressure is mounting on pension companies to scrap extortionate exit penalties for all customers, no matter their age. More evidence is emerging of firms levying thousands of pounds in charges when savers move their pension to another provider.
From the start of this month pension companies now cannot charge an exit penalty greater than 1pc of the value of a pension if a customer wants to move it, according to rules enforced by the City watchdog.
But the cap only applies to customers aged 55 or over, meaning younger savers are exposed to potentially limitless fees.
Some companies removed exit fees entirely for all customers. However, some of the biggest providers in Britain have not capped fees for under 55s.
The rules are so complicated even professionals are getting caught out, as highlighted by one case seen by Telegraph Money. Old Mutual Wealth told a customer, who is a fund manager, it would cost them nearly 3pc of the value of their £456,000 policy if they decided to move.
That meant the customer, who did not want to be named, faced paying £13,000 to move their pension because they were 50, five years too young for the 1pc cap to protect them. If they wait five years, Old Mutual will be forced to slash the penalty to £4,560.
The customer was not even trying to take their money to a rival firm, and instead was switching to a different product offered by Old Mutual.
After Telegraph Money became involved, Old Mutual agreed to waive the fee entirely, but a spokesman said this was only because the customer was moving to another policy offered by the firm.
The customer’s financial adviser, David Penney of PR&W, said his client wanted to move because of limited investment choices, high ongoing fees and antiquated systems that mean passing on unused savings on death were cumbersome.
He accused City watchdog the Financial Conduct Authority (FCA), which set the cap at 1pc, of discriminating against younger savers.
He said: “In applying the restriction on exit penalties to over 55s only, the FCA is not treating all people equally. The rule was introduced in light of the new pension freedoms, but the benefits of these freedoms are not all age-related.
“In particular, the more flexible and tax-efficient death benefits, which are often not available on older schemes and policies, apply on death at any age.”
Pressure builds
Last week Telegraph Money helped cut another reader’s exit penalty in half, from £14,000 to £7,000. Mark Brown, also an Old Mutual Wealth customer, was faced with an even bigger penalty, as a percentage of his fund.
The exit charge of 4.5pc applied because he was 43 years old and the terms of the contract meant he would be penalised for moving his money before the age of 50, the retirement age selected when he took the policy out 18 years ago.
Providers are coming under growing pressure to slash or ban exit penalties for all customers.
Earlier this week an independent report on Royal London, a pension company, recommended a review of the firm’s exit charges beyond what the FCA requires.
The firm’s “independent governance committee” said the firm should take “voluntary action” this year on fees.
Providers are not compelled to follow the recommendations of the committees, which must report on whether customers are receiving value for money each year.
Pension companies Standard Life and Aviva have also not capped charges for under-55s, while Aegon is removing exit fees in stages. Scottish Widows has scrapped exit fees entirely. The Old Mutual Wealth spokesman said: “Our pension exit fees only relate to contracts that were set up before 2000.
“They are structured in a way that means the upfront costs to set up the policy were spread across the term that was selected. In October last year we capped exit fees at 1pc for customers aged 55 or over, six months ahead of the FCA’s deadline.”
This move helps ensure our customers can take advantage of the freedoms in retirement introduced in April 2015.
“At the same time we reviewed all of our charges on older contracts and decided to reduce exit fees for a number of customers where they still apply. We consider further concessions on a case-by-case basis.”
Workplace pension schemes have until October 2017 to apply the cap.
Tom McPhail of Hargreaves Lansdown, the pension company, said even a 1pc cap is too high.
“An exit penalty should reflect the actual cost of cashing out or moving that policy. So, if the investments are unusual that might be higher but in most cases it will be a small, fixed cost.”