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Govt calls to change older policies would cost providers billions

Steve Webb 480 LibDems DWP

Pension firms are likely to face billions of pounds in costs if they take pensions minister Steve Webb’s advice and review older pension schemes to offer members “fairer terms”.

Earlier this week, Webb called on pensions firms to address the high charges and exit costs of certain older policies. “They should ask themselves if the battered reputation of their industry would not be greatly enhanced if they were to revisit these schemes and offer scheme members fairer terms,” he said.

Cazalet consulting founder Ned Cazalet says: “I would not be at all surprised to see this cost life companies in excess of £10bn. Writing business on skinny margins has pushed some life offices out of pensions. Repricing old business on those skinny margins would leave a lot of firms looking very thin on capital and solvency and would cause real problems for the financial stability of the sector.”

Last week, Hargreaves Lansdown head of pensions research Tom McPhail urged providers to offer an “amnesty” on exit fees. He says: “The hit would not all have to be paid at once and it would help money flow from bad pensions to good. This would do a great deal to restore the good faith of politicians and the public.”

ABI director general Otto Thoresen says: “Where exit charges do exist, they are there to protect those who still have money in the fund or because the contract was set up for a longer period. They will always be made clear in the contract.”

A Scottish Widows spokesman says a “small number” of the firm’s older contracts have exit charges. “We believe these are fair to customers as they protect those who still have their savings with us while covering the costs we have incurred,” he says.

A Skandia spokesman says the firm is not currently considering a review of old policies. He adds: “We see it as less of an issue than other life companies because our back book is significantly smaller.”

Standard Life says it removed most exit charges as part of a repricing of its pension book in 2001.

In a Money Marketing interview last week, Webb admitted it would be difficult for the Government to intervene without evidence if customers were misled.

Hunter & Co principle Robin Hunter says: “Big players could not afford to do this, they are trying to cut costs and this could be a step too far. ”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Most of these ‘unfair’ contracts work out cheaper than stakeholder if they run their full term.

  2. Flush out the rogue providers that are fleecing their clients. But expect the advisers who recommended them to contribute their share too by paying back commission. And what about the Government’s contribution for negligence – if the deals are so bad, why were they allowed?

  3. Why leave it just with pension products make all providers do it include Honda offer me better terms I fancy a new free car upgrade. How stupid in a climate where firms are already got RDR cost lower business volumes. Maybe Steve Webb should focus more effort on the economy as this will have the biggest impact on pensions (fund growth, contribution level, taxes etc…)

  4. Whilst I am in favour of challenging unfair contract terms the Government shouldn’t throw the baby out with the bath water. Otherwise Mr Webb you (or your successor) will be sat there in a couple of years time wondering why Life offices have solvency issues and future charges have been increased for all customers to compensate.

  5. Lots or the usual whinges, which can be summed up as ” if we have to repay the money we swindled the punters out of we’ll be broke”
    to quote the Sgt Major in “it a’int half hot mum”;

    When is the whole financial sector going to wake up, smell the coffee and start treating customers as client not as mugs to be fleeced?

    ….answers, in pencil, on the back of a £50 note to……..

  6. Do I hear a charge of ‘morally wrong’?
    The Government has already played havoc(Gordon Brown) with Pensions and are now making spurious charges against the Industry they decimated.
    if they had any semblance of decency they would back off.
    It is they who have caused many Final salary schemes to fold due to ridiculous misinformation strategies,it is they who have caused markets to fall(bank buyouts) it is they who cant manage to get it right as regards Budgets(all parties included here) it is they who institute retrospective legislation and then decide to back track, it is they who take as much as they can personally (huge pensions expenses) it is they who sell the Countries Gold,pay huge amounts away to despotic third world countries,offer our heritage to influx of people who endup with more than we are entitled too.
    Do i make my point?

  7. The Gordon Brown raid on dividend credit is equivalent to a 0.4%pa charge over a 25 year pension so how about ‘reducing’ that charge Mr Webb? and whilst you are at it what about ISA’s too.

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