Savers wanting to access their pension funds and take advantage of pension freedoms will no longer face extortionate exit fees, thanks to government plans to cap them.
The Financial Conduct Authority (FCA), who have been assigned to implement a cap on excessive exit charges, were instrumental in a data-collecting investigation which revealed that 16 per cent – 670,000 of pension savers had to pay an early exit charge. Of these:
- 358,000 faced penalties of up to 2 per cent
- 165,000 faced penalties between 2 and 5 per cent
- 81,000 faced penalties between 5 and 10 per cent
- And 66,000 had to pay penalties above 10 per cent.
Speaking recently in the House of Commons, Chancellor George Osborne described the exit fee situation as a 'rip-off' and announced the government would 'change the law' and appoint the Financial Conduct Authority to cap excessive early-exit charges for pension savers.
Martin Parish South West Area Director at Aon Employee Benefits said: "Exit charges or transfer penalties – there are various terms for the same issue – have been a long term issue for investors and savers wanting to have choice and control over the future of their investments. Exit charges exist to protect the provider, typically where they have paid upfront commissions to the intermediary market. But as the commission market has now more or less ended, the need for exit charges should be removed."
But concerns have been raised that the proposed government cap would only apply to contract-based schemes, since these schemes are regulated by the FCA and trust-based schemes are regulated by the Pensions Regulator (TPR). Pensions Minister Ros Altmann has since confirmed that a separate cap would be imposed on trust-based schemes too.
A spokesman for TPR told Professional Pensions Magazine: "The Government recognises that for the cap to be effective it needs to apply across the whole of the pensions market. We will work with the Department for Work and Pensions and the FCA to achieve this."
Parish added: "Consistency should be the aim. If we want investors to be confident over the long term, the industry needs to provide a consistent structure across the UK pensions market and all scheme types. Many investors will join numerous pension schemes throughout their careers, both contract-based and trust-based, but without a consistent framework, how can the industry expect people to understand and engage with their longer term financial wellbeing?"
The FCA are expected to announce the level of the early exit fee cap in due course.
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