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ABI calls on Govt to allow transfers out of high charging pensions

The Association of British Insurers wants the power to transfer savers out of legacy, high charging pension schemes without their consent.

An audit of legacy schemes found up to £26bn of assets trapped in plans with charges over 1 per cent. Following the audit, pensions minister Steve Webb said he was “shocked” and would be holding crunch talks with companies to find a solution.

Money Marketing also revealed the cost of delaying moving members from these schemes to more recent pensions within the 0.75 per cent charge cap could cost savers £340m in extra charges in just a year.

In a blog, posted yesterday on the trade body website, ABI long-term savings policy director Yvonne Braun says providers are ready to act to move savers into better value schemes and the Government must “itself show boldness to allow them to do so”.

She says: “Specifically, the Department for Work and Pensions should give providers the power to move members to a new scheme or fund without their consent where it has been verified by the independent governance committee that such a move is in the best interests of scheme members.”

Braun says “reform will not be complete” without Government permission to move members without their consent because the alternative would require individual members to give their approval to the transfer.

She says the new governance committees, which all contract-based pension providers will have to have in place from April, will need to make “tough decisions about what is in the best interests of the majority of scheme members collectively, rather than individually”.

Braun adds providers would also need to be given protection from potential compensation claims from members arguing they were moved to a worse performing fund.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. I must be missing something. Why don’t the insurers restructure the funds / schemes and charges to achieve the desired result?

  2. Steve Webb is ” shocked ” to find pension contracts charging over 1%.

    A typical bundled unit trust or OEIC charges over 1.5%, even unbundled it is still around 0.90% on average. It is up to the providers to make a commercial decision to see how low they can go without putting their business at risk.

    Legacy contracts of all types were priced to produce a profit over the long term, just think how many advisers churned plans at the end of the commission indemnity period and made a good living out of it? This must have affected the pricing of contracts, and large sections of the insurers’ back books are still not profitable. Did anyone ever make a profit from Stakeholder plans?

    Now that we do not have this problem, providers can price more competitively, and the consumer will benefit. We cannot undo the past, so there is no point ministers and regulators trying to apply fairness retrospectively.

    I do not remember banks being forced to put savers in better rates when they became available, or borrowers being put on lower fixed rates when Base Rates fell.

    So I agree that providers should be able to improve terms voluntarily, but this should not set a precedent that all are forced to comply.

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