A ‘tax on widows’
Some firms charge nearly £1,000 to transfer a pension on death or divorce,
Widowed people and divorcees are being punished by hefty fees, often adding up to hundreds of pounds, when receiving their share of their former spouse’s pension.
These processing fees, charged by firms including AJ Bell, Barclays Smart Investor and Interactive Investor, are levied when money is paid out from a selfinvested personal pension (Sipp) on death or divorce. In some cases people are charged £500 or more.
Charges are generally calculated on a “time plus cost” basis, meaning the longer it takes for the money to be shared out, the more you pay. This can add extra pain to an already drawn-out process.
Former pensions minister Baroness Ros Altmann said it was shocking that providers were able to charge such fees, particularly when people may be going through emotional difficulties.
“These kinds of hidden charges have often given pensions a bad name and it is hard to imagine that there is a huge amount of additional work involved in paying a partner’s pension,” she said. She called for an investigation to see whether customers were being treated fairly.
Sipp providers charging customers based on the time taken to split a pension on death or divorce include A J Bell, Bestinvest and Charles Stanley Direct.
AJ Bell’s website says the minimum expected cost is £250, while Charles Stanley Direct’s fees are typically up to £500 plus VAT on death and up to £700 plus VAT on divorce. Bestinvest said its fees were entirely case-dependent. Barclays Smart Investor, Halifax Share Dealing and Iweb also provide Sipps via A J Bell, and so the same charges will be applied.
Other providers have a flat fee regardless of time taken to process the payout. Close Brothers Asset Management charges £250 plus VAT when arranging for beneficiaries to receive a pension on death, and £500 plus VAT on divorce. The Share Centre charges £400 plus VAT (£100 is its own administration fee and £300 is charged by the pension provider it uses) after a person’s death. It does not take a fee on divorce, although there would be a charge for transferring out should the former spouse wish to move their share of the pension elsewhere.
Interactive Investor uses a mix of fee structures, charging from £200 to £500 – time-dependent – for payouts on death and a flat fee of £300 for divorcees. In both cases VAT is then added.
A J Bell said pension sharing on divorce and paying out pension death benefits can be administratively complex, hence why it levies a fee. However, other Sipp providers do not charge in these situations. These include Fidelity, Vanguard, Hargreaves Lansdown, Nutmeg, Selftrade and Willis Owen.
Vanguard’s Andrew Marker said his firm did not charge in these events as they were simply a part of life. “Investors already pay a platform fee, and it is entirely logical for them to expect that to cover all reasonable eventualities,” he added. Both Vanguard and Willis Owen said that adding extra fees could make it hard for consumers to compare the cost of different Sipps like-for-like.
Interactive Investor said it was looking for ways to simplify its Sipp charges, and that those for pension sharing on divorce and death benefits were under particular scrutiny.
Aside from death and divorce charges, other extra fees can be levied on selfinvested pensions. These can include charges for transferring money in and out, and valuation fees.
The financial regulator has looked at exit penalties, where companies impose large charges for transferring a pension to another firm, and has proposed banning such fees for new pensions.
Barclays Smart Investor and Halifax Share Dealing charge both for transfers in and transfers out. Other firms charging for transfers out to another provider include AJ Bell, Charles Stanley and The Share Centre. Fees for transferring out to other British pension schemes range from £75 to £125.