Exit fees on personal pensions should be scrapped, warns IFA
As Scottish Widows announces plans to scrap exit fees on certain workplace pensions, independent financial advisory firm (IFA) Chase De Vere is calling on companies to turn their attention to the bigger issue of fees on individual personal pensions.
This week, pension provider Scottish Widows announced it is abolishing exit fees on all of its workplace pensions, enabling policyholders to switch to alternative plans free of charge.
The announcement comes in the wake of regulator, the Financial Conduct Authority’s, decision to curb excessive fees with the introduction of an as yet undecided cap on exit fees from March 2017.
Peter Glancy, head of industry development at Scottish Widows says: “We believe more can be done to make the pensions market work better for customers and the removal of exit fees is a key milestone in helping to achieve this goal.
“These fees are largely associated with older style products, typically sold before 2001, and reflect expenses already paid by a provider in setting up the policy, which would normally be paid back if the saver stayed in the scheme to their retirement date.
“But with pension freedoms enabling people to access their money earlier than they had originally expected, we believe these fees place an unnecessary barrier on those wishing to take their money or move to a more modern product.”
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Exit penalties on individual pensions is ‘bigger issue’
However, Sean McSweeney, corporate advice specialist at IFA Chase De Vere says that while the removal of the fees is welcome, only a very small number of people will benefit.
Commenting on the Scottish Widows announcement he says: “We support Scottish Widow’s decision to scrap exit fees across all of its workplace pensions, although the reality is that very few of these are likely to exist anyway.
“The overwhelming majority of workplace pensions don’t have exit fees and I would be surprised if any that were set up if the employer received independent financial advice have penalties. Even older schemes which were established with exit penalties should, in theory, have been re-priced and made better value some time ago.”
He adds: “So, while it is pleasing that Scottish Widows is getting rid of any remaining workplace pension exit penalties, the bigger issue is likely to be exit penalties on individual pension policies. It would be great if providers can properly address these too.”
Currently 16% of savers have exit charges on their pensions – with some 3%-4% facing charges upwards of 5% of their fund.
Scottish Widows says it is in the ‘process of reviewing’ charges on its individual contracts.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.