Old Mutual Wealth has agreed to cap the exit fees it charges savers who transfer to rival providers before the age of 55.
Exit penalties will now be limited to 5% and the pension company has reportedly set aside £69 million to cover this cost, along with the costs of refunding any charges in excess of 5% levied to customers who moved their pension after 1 January 2009.
Commenting on the move, Paul Feeney, chief executive of Old Mutual Wealth says: “Following comprehensive product reviews of our legacy business, we are starting voluntary remediation to customers in certain legacy products within the Heritage book. Our core business philosophy is to do the right thing by our customers, and this product review is part of putting this into action.”
Charges for savers over the age of 55 were capped at 1% by the Financial Conduct Authority (FCA) on 31 March 2017, making it easier for those in, or approaching retirement to take advantage of the pension freedoms.
Introduced in April 2015, these new rules allow over 55s to use their pensions as they wish, however some were effectively prevented from moving their money by high exit charges.
Yet although the FCA cap means it is now cheaper for older savers to switch pensions, under 55s may still find it prohibitively expensive to move their savings into pensions that potentially offer better value.
In capping its charges, Old Mutual Wealth, will at least be taking some of the sting out of a transfer. However, with a 5% bill still equating to thousands of pounds for many savers, it still may not be regarded as enough of a reduction to make moving worthwhile.
Nathan Long, senior pensions analyst at Hargreaves Lansdown says: “Taking control of your retirement planning early on is crucial to ensuring you can finish work when and how you want to. Opting for a pension service that helps you understand how much to pay in and where to invest is therefore critical.
“We find consolidating pensions boosts engagement levels as people feel more in control, so people may suffer if they are being locked out of transferring because of steep exit penalties. Recovering the costs of administering a pension transfer is understandable, being walloped with transfer out fees of up to 5% is not.”