Ever since pensions freedoms were introduced, exit charges have been a contentious issue so many commentators have welcomed the recent proposal to cap exit fees
The Financial Conduct Authority (FCA) has proposed a 1% cap on exit charges for existing contract based personal pensions, including workplace personal pensions. Firms will also not be able to apply any exit charge for new personal pension contracts once the proposed new rules come into force.
Ever since pensions freedoms were introduced, exit charges have been a contentious issue so many commentators have welcomed the recent proposal. Darren Philp, director of policy and market engagement at The People’s Pension said: “We believe that, with the right help and information, savers should be free to move their money when they want to without facing a penalty for doing so.
“We welcome this consultation on exit charges and don’t believe they have any place in a modern and well-functioning pensions system.”
But is there an argument for exit fees to be scrapped altogether? Tom McPhail, head of retirement policy at Hargreaves Lansdown doesn’t feel that the cap goes far enough. He commented: “The fee should be capped at 0% and this would benefit a further 150,000 investors. A 1% cap is something of a victory for corporate vested interests. We hope that the cap can be brought up to a zero tolerance of exit barriers in due course.”
We hope that the cap can be brought up to a zero tolerance of exit barriers in due course.
McPhail goes on to say that the cap only applies to those wishing to exercise the pension freedoms, and that those wishing to transfer old, expensive private pensions to improve their value for money, while they are still building their savings, will not benefit from the cap.
The new proposal also serves to highlight the irony and inconsistency when it comes to exit charges. Billy Mackay, marketing director at AJ Bell said: “…on the one hand we have a proposal to set early exit fees on pensions at 1% and at exactly the same time a proposal to introduce an early exit penalty on Lifetime ISAs of 5%.
“Any charge simply to access your own money is unfair. Charges should be applied by providers in a way that allows them to be related to the work the provider needs to carry out for the customer in return for that charge.”
The FCA will be given both the power and duty to cap exit fees by Parliament once the relevant section in the Bank of England and Financial Services Act 2016 comes into force. This act aims to ensure that consumers can access the government’s pension reforms easily and affordably.
With pensions freedoms proving popular with retirees a government intervention on exit fees is long overdue. Whether progressives in the industry looking for an overall ban will get their way remains to be seen.