Dramatic headlines are counter-productive and the industry is doing its best, argues Richard Butcher, independent trustee and managging director of PTL.


Source: Flickr

The Mirror: “Don’t get caught up in the pension pot flop”

Mail On-line: “Stop Jurassic World insurers ruining pension party”

The Telegraph: “Hundreds of thousands to benefit as George Osborne outlines plans for a charge cap on ‘excessive’ fees of up to 20 per cent”

The Financial Times: “George Osborne to consult on cutting UK pension exit charges”

It was only just over a year ago that George Osborne announced that DC members were to get ‘Freedom and Choice’ over how to use their pension pot. Since then there has been a huge amount of related and unrelated activity to get us to where we are now.

In the “related” camp, many providers and schemes (though not nearly all) have built systems to accommodate the freedoms, despite a back drop of change piled upon change throughout the year (the “second line of defence” regulations weren’t finished until the closing days of March).

Quite simply, there was too much to do in too little time

In the “unrelated” camp, the Independent Project Board (IPB) published their report on legacy and expensive DC pension schemes, the emerging work from which is now being picked up by trustee boards and the newly created Independent Governance Committees.

All of this effort is heading, inextricably, towards one place – a place where charges represent value for money and members can exercise freedom – but, crucially, we aren’t there yet. Quite simply, there was too much to do in too little time.

This simple fact, however, hasn’t stopped the dramatic headlines – or the dramatic headline making by the politicians:

George Osborne: “There are clearly concerns that some companies are not doing their part to make those freedoms available.”

Ian Duncan Smith: “we are prepared to name and shame those companies who are putting barriers in the way of people getting access to their money.”

Lord Bradley (the Shadow Pensions Minister): “George Osborne’s dithering over a cap on rip-off fees and charges have meant savers who want to access their retirement income have risked losing thousands of pounds.”

Please, dramatic politicians and dramatic headline writers, give it a rest. By and large the industry knows there are things that need doing and they are getting on with doing them. At the moment you want your cake and to eat it too having given the baker no time to buy ingredients, much less to mix them or bake anything. Your dramatics are just making things worse.

A final thought:

Exit charges aren’t yet a thing of the past but they do only exist in relation to old pension products. Modern pension products do not have exit charges.

These exit charges can be high and there’s no doubt there were a few designed to discourage customers from taking their money away.

More commonly, however, exit charges were there to recover unrecovered set up costs, in particular advisor commission. Typically, these charges will be less than 5%, although in some exceptional cases they can be higher particularly where contributions stopped after a short period of time and so the pot small. In other words they can be a hit on a member but not generally a significant hit.

Exit charges aren’t yet a thing of the past but they do only exist in relation to old pension products”

Contrast that with the rate of tax applied to some one who takes their whole pot as cash: a minimum charge of 20% on anything above a ¼ of the fund and up to 45% for bigger pots. How is that different from a “rip off exit charge”?

Could, I wonder, a sceptic conclude that the government will force insurers to reduce exit charges only so as to increase its tax take? Turn that into a dramatic headline.

Richard Butcher, independent trustee and managing director of PTL