The Daily Telegraph - Saturday - Money
Pension fees: ‘I’ll have to pay £14,000 to switch’
Despite a promised cap on ‘exit penalties’, pension firms continue to apply huge fees to savers who move, says Sam Brodbeck
Some of Britain’s biggest pension companies are still charging “exit penalties” of tens of thousands of pounds when customers try to move their savings, despite a new cap imposed by the Government. Policies established in the Eighties and Nineties frequently contained small print that meant up to 40pc of their value could be swallowed in penalties if they were cashed in or transferred before a specified age, normally 55 or 60.
Following the launch of the “pension freedom” rules in April 2015, the Government capped the exit penalty at 1pc so people were free to use the new flexibilities.
The cap should apply from March 31 but, crucially, only for people aged 55 or over. Some firms have voluntarily gone further and capped or scrapped exit charges for all customers. Others – including Old Mutual Wealth, formerly known as Skandia – have not.
In one case involving the firm, seen by Telegraph Money, a customer faces a £14,000 penalty to move his pension pot, turning £307,000 to £293,000 – an effective exit charge of 4.5pc. He has been a customer for 18 years.
If the 1pc cap was being applied, Mark Brown, 43, an executive at a technology firm, would pay just £3,070 to move his pension.
A spokesman for Old Mutual Wealth said Mr Brown selected a retirement age of 50 when he began saving into the policy in 1999.
He said: “Some of our pension contracts that were set up prior to 2000 are structured in a way that means the upfront costs to set up the policy were spread across the term that was selected. Mr Brown will be able to transfer without an early encashment charge from the retirement age he selected when he initially purchased the product.
“We assess customer requests on a case-by-case basis to reduce or waive early encashment charges on older contracts taking extenuating circumstances into consideration, such as serious ill health where a customer is looking to access their funds early.”
When pushed by Telegraph Money, the firm agreed to halve the charge, resulting in a saving of around £7,000. It said this was in respect of poor customer service, not because it is changing its policy towards other customers in similar circumstances.
Other major pension providers are taking the same stance. Aviva, the FTSE 100 insurance giant, said the “purpose of the cap is to support pension freedoms” and “therefore only applies to those customers aged 55 or more at exit.”
Likewise, Standard Life does not cap exit charges for under-55s. A spokesman said: “In line with the terms of a customer’s contract, exit charges reduce over time and are calculated based upon each customer’s individual circumstances, including how much and long they have paid contributions for, at the point they exit”.
Other providers are taking a more customer-friendly line.
Aegon said it was removing all exit charges in stages as part of a programme of upgrading hundreds of thousands of old policies to a modern platform.
And Scottish Widows, a pension company owned by Lloyds Banking Group, has gone further and not only scrapped exit fees entirely, rather than capping at 1pc, but done so across its entire customer base. As more cases emerge of younger savers losing out while older customers are protected, the Government is coming under pressure to extend the ban.