MSE News: 'Rip-off' pension exit fees to be capped 19 January 2016 at 6:43PM in Pensions, annuities & retirement planning 14 replies 1.6K views

MSE_Luke

Withdrawing money from your pension or transferring it to a new scheme could soon cost hundreds of pounds less...

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''Rip-off' pension exit fees to be capped'

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bmm78

Definitely one where we need to see the detail behind the headlines.

This will obviously need to come from the FCA rather than the government. Interesting that the FCA have refused to comment on the matter, much less provide any official confirmation of their plans.

The words "hospital" and "pass" once again spring to mind.

Paul_Herring

So, they're going to try to retroactively change the contracts of the pension funds so the pension companies end up losing money?

They're going to ban Market Value Reductions?

This should be interesting....

neilvw

Interesting to see what they do with capital-/initial-unit reductions, where early contributions or recent increases in premiums bear a lot of the cost of the initial provider expenses.

grey_gym_sock

there's nothing odd about the idea of regulating consumer contracts, even "retroactively", with the aim of eliminating rip-offs. though i agree that some of the details could be tricky.

Paul_Herring

grey_gym_sock wrote: »

there's nothing odd about the idea of regulating consumer contracts, even "retroactively", with the aim of eliminating rip-offs. though i agree that some of the details could be tricky.

They're only perceived as "rip-offs" now, because more recently created (and 'cheaper') funds were created without the back-loaded costs the older funds were set up to have if funds were withdrawn early.

The pension companies, if forced to not retrieve those back-loaded costs will find another way of obtaining that money. This is simply going to be another whack-a-mole exercise with the financial industry.

Not that I disagree with the principle, I just utterly fail to see how it can work in practice.

DaveMcG

grey_gym_sock wrote: »

there's nothing odd about the idea of regulating consumer contracts, even "retroactively", with the aim of eliminating rip-offs. though i agree that some of the details could be tricky.

But the terms of these contracts in the main were known by regulators who made no objections whatsoever at the time and throughout numerous reviews for various reasons thereafter. It would be an gargantuan omnishambles if all these contracts over all these years were suddenly "unfair".

Insurance companies can be a bit spineless and might buckle down, but I am fairly sure if contract terms were fully disclosed at the time of sale, a legal challenge to any strong-arming by the FCA would be successful.

Some "exit charges" related to with-profits simply can't be abandoned and any move in that direction would lead to the courts I think.

grey_gym_sock

well, perhaps previous regulators were spineless - not a good reason for inaction from current regulators.

though i agree there are practical problems here, both with front-loaded charges and with exit from with-profits.

dunstonh

There are over 8 million pensions. Around 700,000 have exit penalties. However, its not known how many of those could be considered unfair. Probably a minority in the end but he headline looks good for those that dont care about details.

With profits is a fund. Not a pension. So, the pension could have no exit charges but a fund within it could. A SIPP could have exit charges if you include the investment. So, its all a bit unknown. I suspect this is just a Tory headline to counter Labour's (as the there was already a review planned). The outcome is likely to see a very small number affected in my opinion.

The current regulator allows recovery of charges on exit (such as an adviser charge). So, if it allows it now, it should allow it back in the past (as it did). The ones it wants to hit are those that recovered the charge but have continued to levy it right to the end.

saver861

Well I'm not sure how it is perceived if they are unfair 'now'. If these fees were stipulated at the time of initiation, then one presumes they were unfair at that point also. Why was it not dealt with before now?

I was never convinced by those MVR's. A few years ago I enquired about moving some pension funds and I was told the MVR was over £600. I left it and some months later the MVR was £0.

However, if companies are ratcheting up charges as a result of the freedoms, then that might be a different matter.

dunstonh

Well I'm not sure how it is perceived if they are unfair 'now'. If these fees were stipulated at the time of initiation, then one presumes they were unfair at that point also. Why was it not dealt with before now?

Most of these contracts that are now considered unfair would have been built in the period of high inflation, boom/bust. They were priced to that model.

However, if companies are ratcheting up charges as a result of the freedoms, then that might be a different matter.

There is no evidence of that. Ironically, only modern plans can do that. The original life company pensions couldnt change terms once offered.