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Closed-book providers unlikely to relent on pension exit fees

Crumpled Note UK Currency Pound 480

Advisers say closed-book providers are unlikely to bow to pressure to voluntarily cut exit fees on old policies because they rely on them to make money.

Providers have come under growing pressure from industry figures and politicians to tackle exit penalties due to concerns about the impact they have on customers who want to move their pension to a different company.

Last month, Association of British Insurers director-general Otto Thoreson pledged to uncover the extent of the problem. Pensions minister Steve Webb subsequently warned providers their “battered” reputation will be further tarnished unless they deal with the issue.

Last week, Aviva and Prudential said they will review exit penalties on old pension policies.

Skandia says it has no plans to review old policies, while specialist closed-book providers Phoenix Life and ReAssure – formerly Windsor Life – have refused to comment on the issue.

Hargreaves Lansdown head of advice Danny Cox says: “Closed-book providers know the longer they hold the money, the longer they will continue to earn revenue from the client. Making exits expensive and difficult is arguably part of their business retention strategy.

“The Government should look to introduce a cap on transfer fees and it should be a nominal administration charge of, say, £75.”

Radcliffe & Newlands chartered financial planner Mel Kenny says: “Closed-book insurers will need to be forced to offer a good exit deal to their customers.

“Without some sort of compulsion there is no incentive for closed providers to remove these penalties.

“In order to make this happen, the FSA could place a refusal on future company purchases until the back-book has been reviewed.”

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