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. ”