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Hargreaves introduces drawdown exit penalty in pricing overhaul

Hargreaves Lansdown will hit savers who attempt to withdraw their entire pension fund within 12 months of opening an drawdown account post-April with a £295+VAT penalty following a review of its pricing.

The non-advised broker has scrapped all other fees for accessing drawdown, meaning savers will only be charged a platform fee and an investment fee.

Previously, drawdown investors were charged £295+VAT to open a drawdown account, £10+VAT to alter the payment amount or frequency, and £25+VAT for one-off payments.

Hargreaves Lansdown head of pensions research Tom McPhail says the early access penalty is necessary to cover the firm’s administration costs if someone attempts to strip out their entire pot within a year.

He says: “We are essentially removing all of the set-up charges for drawdown, so the investor just pays the platform charge and the investment charge.

“However, if someone transfers their money in, sets up a flexible drawdown contract and then takes out their money in the first 12 months, we will make a one-off account closure charge of £295+VAT.

“That is simply because otherwise we will have loads of people washing their money through our drawdown. We will have done all the work and all the administration and then they just take their money out and we have made nothing. That is to protect the business.

“I expect some people will criticise us for that but if we didn’t we’d essentially be offering a lot of people a free service.”

McPhail adds the firm’s platform pricing, including its controversial exit fees, are not affected by the changes.

The Platforum head of direct Jeremy Fawcett says: “Of the direct platforms I’d expect Hargreaves Lansdown to get the lion’s share of the market in the first phase given that they have first mover advantage on drawdown and the largest direct-to-consumer market share. 

“The exit fee is consistent with Ian Gorham’s view that where there’s a cost, there’s a charge. While they may get slammed by the press for it, most consumers won’t care so they will be able to defend it until they look out of step with the market.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Does the exit penalty apply when taking TFC in the first 12 months?

  2. An interesting move, though I was under the impression that the FCA doesn’t like exit penalties from anything.

  3. We all have to make commercial decisions with these potential transactional customers, if there is work done for them and no long term relationship they must pay for it.

    I would suggest that only taking TFC is a normal and popular function of drawdown, as I did with my HL SIPP, and should not be chargeable.

  4. The article does mention this is for savers who withdraw the *entire* fund hence a closure charge.

    “The drawdown service will have no set-up fees or fees for income withdrawals” – from another site.

  5. Makes sense…. and IMHO is TCF given that they’ve essentially moved a charge from the front end (benefitting all) and put it at the back end (benefitting those who remain invested whilst being no greater than was already the case for those who leave).

  6. What if you leave just £1 in – and not fully close it?

  7. @Nelly, if they think too many will try that then they will simply bring in a minimum holding below which THEY will close it and apply the fee. Much as we can have fun knocking the competition (or lack of as we rarely compete) this is as others have said a sensible commercial decision as HL are not a charity or Gov’t Quango unlike the FCA which is a tool of the Treasury and thus the executive.

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