Pension experts have begun to calculate the cost of a 1 per cent cap on pension exit fees for savers and providers
Today (15 November) the Financial Conduct Authority announced a 1 per cent cap on early exit penalties for existing personal and stakeholder pensions from the end of March 2017 and banned exit fees on future pension plans.
Minister for Pensions Richard Harrington also set a cap on exit fees of 1 per cent for existing occupational pensions and 0 per cent for any new contracts.
It was immediately clear some providers would be hit hard in the bottom line by the regulator and government’s cap to exit fees in a bid to give everyone access to pension freedoms.
However Dr Yvonne Braun, director of policy, long-term savings and protection at the Association of British Insurers, said more than eight out of 10 customers are unaffected by early exit charges.
Where exit fees do currently apply in one out of five pension plans, Dr Braun said most fees are 2 per cent or less.
For providers with exit fees still around 2 per cent, they will now see the amount of cash they rake in from this penalty halved.
Other industry commentators were angry that the 0 per cent cap did not apply to existing contracts and highlighted while 1 per cent sounded good in practice this could be a large sum of cash.
Tom Selby, senior analyst at AJ Bell, said: “The cap on early exit fees for pensions, including occupational schemes, is a start but 1 per cent of a £100,000 pension is still a £1,000 charge for accessing your own savings.
“The pension freedoms are now well established yet there are still thousands of people that are going to have to pay thousands of pounds to access them.
“We hope the authorities continue to monitor the cap to assess whether it should be lower or even abolished if early exit penalties continue to prevent people utilising the new flexible pension rules.”
Hannah Maundrell, editor in chief of Money.co.uk, questioned why the 0 per cent cap can’t be the case for all customers in order to create a really level playing field.
David Trenner, technical director of Intelligent Pensions, said the main benefactors of the cap to exit fees is clients whose pensions are constantly being ‘churned’ by advisers.
However he showed some sympathy for providers and potentially savers who stick with their pension plan who could be hard hit by the introduction of the cap.
Mr Trenner said: “It really is a nonsense to look at policies written 20 or more years ago and decide that their charging structures should be changed retrospectively.
“The losers in some cases will be other policyholders who do not transfer, so how is that treating customers fairly?”
emma.hughes@ft.com
