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Half a million exposed to exit fees over £1,000

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Nearly half a million pension customers have policies subject to exit fees of over £1,000, FCA data reveals.

The regulator’s survey of 23 firms found 463,000 people with unitised pension policies – excluding conventional with-profits policies – of all ages would be hit with a fee of £1,000 or more if they left policies early.

However, there would be no exit fee at all for 83.6 per cent of customers aged 55 or over and 89.6 per cent for people younger than 55. This is equivalent to 17 million people.

In addition, 990,000 would pay £250 or less, while at the opposite end of the scale 39,000 people would pay £5,000 or more if exiting a policy early.

The most common reason firms gave for levying exit fees was to recoup outstanding initial expenses and/or initial commission already paid out.

Other reasons given included recouping charges that would have been deducted over the full life of the policy and ensuring exiting individuals were put in the same position as someone who had chosen a shorter duration of the policy at outset.

The largest 15 providers also provided details of the administration cost they would bear as a result of an early exit.

The vast majority of firms said the cost incurred by paying cash to customers or facilitating a transfer to another provider was £50 or less.

Source: FCA
Source: FCA

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Amazing how headlines differ. NMA has just posted the results of the exact same survey and their headline was “Regulator finds 84% of over-55s pay no pension exit fee”. Nearly 84% of those aged 55 or over and nearly 90% of those below 55 pay no charge. Your headline is based on 0.97% of the 4 million surveyed. Come on MM, play the game, say it as it is and make the headline a positive one for a change.

  2. All these exit fees were contractual at the time of advice. Which, where an exit fee was contractual was obviously many moons ago. The fees and charges levied by pension providers were acceptable way back then and of course, the pension providers were subject to regulation, albeit by LAUTRO or the later incarnations of the FCA.

    So what if there is an exit fee? If the overall contractual terms have been fair, then an exit fee does not necessarily indicate a rip off or poor value.

    As usual the FCA committing time and expense to an exercise that has no real outcome or consumer benefit.

    I remember my cars of old needing servicing every 10,000 miles ( or less), now it’s every 20,000 miles. Thats due to manufacturing progress and increased efficiencies.

    Was I miss sold a car way back when based upon the fact that modern cars are more efficient and have a less frequent servicing schedule? No I wasn’t!

    Remember the days before the internet and the advancement of computerisation? When processes were still manual? That’s when many of these old policies were sold and the production costs were higher.

    Well done FCA, yet another waste of time and money on an ill thought out exercise. What a shambles. It’s a good job the adviser community isn’t as incapable, inefficient and ineffective as their regulator. Now that would give consumers something to worry about.

  3. I am sure that many such policies when run to full term work out cheaper than Stakeholder or auto enrolment. Those of us that have been around some time and done the job know that, the FCA staff are inadequate in terms of knowledge and experience of the industry they regulate and any reports they compile will be flawed as a result.

    If that was me I would be deemed not competent to advise and out of business. I am glad to see that the Treasury are taking a keen interest in the FCA, and may come to similar conclusions.

    My services are available if a six figure income, pension benefits and ivory tower are all included.

  4. Half baked reporting.

    NAME the miscreants – otherwise the report is worthless.

  5. Geoff you are correct many ‘bad’ front loaded plans do work out cheaper than stakeholder if they run the full term.

    What these reports also forget to mention is whether or not extra allocation was given at outset, what the AMC was compared to non front loaded plans, or whether the plans included any sort of guaranteed annuity rate.

  6. So 93% either have no exit penalty or less than £250. What then is the problem?

    How much it costs a company to pay a transfer to another is irrelevant if taken is isolation.

    If the FCA is truly worried about bigger penalties, it should also publish the proportion to fund value that the penalties represent. That is how HMRC will charge tax on money released through pensions freedom. Could it be the FCA is only interested in looking after the fat cats?

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