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ABI hits back as Osborne targets ‘excessive’ pension exit fees

Huw_Evans

The Association of British Insurers has hit back at Chancellor George Osborne’s plans to tackle”excessive” exit fees and obstacles to to savers transferring pensions.

Osborne announced the plans at Prime Minister’s Questions earlier today, with the FCA set to gather information on potential blocks to savers moving their money.

However, ABI director general Huw Evans says insurers have been working “flat out” to help customers, and criticised the Government’s “rushed” timetable for the pension freedoms reforms.

He says: “We agree that further clarity is needed and have been calling for it for some time. But we reject any suggestions that the industry is putting up unnecessary obstacles to hinder customers exercising their pension options.

“It needs to be remembered that the vast majority of customers eligible for the pension freedoms will not face any early exit fee. Where one is charged it is not a penalty for leaving early, but to cover the costs of setting up the pension, particularly commission.”

Meanwhile, Labour responded by accusing Osborne of “dithering” by opening a consultation on exit fees, rather than intervening in the market.

In this year’s election campaign, Labour promised to limit drawdown charges, and repeatedly warned of rip-offs in the marketplace.

Shadow pensions minister Lord Bradley says: “Labour has repeatedly called for a cap on fees and charges and we’ll continue to press the Government to act in the interests of savers.”

Hargreaves Lansdown head of pensions research Tom McPhail says the launch of a formal consultation will allow the Government to respond to media criticism, while also drawing some of the heat from the debate.

He says: “There was an inevitability to this, but by allowing for a consultation we can explore it in some more depth and hopefully have some sensible responses.”

Informed Choice planner Martin Bamford says the focus on exit fees is a statement of faith in market forces.

However, he adds that challenges remain for the Government’s stated intention of exploring challenges preventing access to a full suite of freedom options.

He says: “I think there’s still a big issue around how people facilitate pension freedom. Advisers and providers are in many cases running scared of future liabilities and the FCA has tried to clarify things like insistent clients but that doesn’t seem to have helped.

“It does make you wonder why they didn’t make it compulsory for providers to offer a full range of pension freedoms in the first place, and if this doesn’t send a clear enough message then maybe the Government will try that.”

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Comments

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

  1. The word commission is always thrown up – nasty IFA for being paid!
    So why is it on a pension taken out 20 years ago where the commission paid would have been £1460 there is a transfer penalty of over £7000?

  2. Veeraraghavan KM 18th June 2015 at 6:43 am

    Insurance cannot be run on whims and fancies of the rulers. It is purely based on actuarial principles of what and in what time frame the money is received and what is the time of payout. The new business costs have to be recouped over the term of the plan. The charge for leaving early for plans which have not run the required number of years expected by the insurer to recoup his setting up cost, cannot be avoided. The crux is when you get a relaxation in rules, you have to abide by the conditions laid down in the policy documents. Politics and Insurance are entirely two different areas. If the insurer is found to be charging more than what is said in the T&C, then they can be liable for penalty by the regulators.

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