Should pension providers be forced to scrap exit fees?

Enable’s IFA’s in  Bishop Stortford know much has been made of the impact of exit fees on pension pots and the effect they would have on savers’ability to enjoy the new pensions freedoms come April. George Osborne’s pensions budget was sold around the idea of freedom – savers can finally do what they want with their pots. But exit fees, of up to 35 per cent, would act as a very effective disincentive to transfer savings anywhere else to allow access to the range of new options.

There have been calls for the Government to intervene on savers’ behalf, but Steve Webb The pensions minister recently played down the scale of the problem. Many of these policies were written decades ago when the pensions world was completely different, some policies were designed around the idea that the running costs of the pension – including the commission paid to advisers for selling them ¬– were paid back over the life of the policy. However, some customers chose to pay all their charges up front, meaning they would lose out compared to those who pay them over time if early exit charges were waived.

Rowley Turton director Scott Gallacher says it would be difficult for the Government or the FCA to get rid of the contracts and that, more importantly, such a move would “destroy confidence in anyone investing in the UK pensions industry”. “It makes it hard for anyone to launch in the market if they can’t be sure of fees. We should have seen a flood of European companies coming to the UK, but apart from Now: Pensions I’d struggle to find anyone who has made a success of coming here.”

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
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