Government plans to cap pension exit charges have been slammed by experts, who brand the plans “worrying” and “ill-informed”.
Chancellor George Osborne said yesterday he would hand the FCA a new duty to cap “excessive” exit fees.
Around 700,000 people face early exit penalties if they move their savings, he said.
Osborne added: “The Government isn’t prepared to stand by and see people either being ripped off or blocked from accessing their own money by excessive charges.”
However, the plans have been criticised by experts.
EY senior adviser Malcolm Kerr says: “It’s concerning that the Treasury and the FCA are looking to rewrite contracts. It is a worry for the industry generally that the Government can decide many years after a contract was made that charges were excessive.
“There’s also no clues what excessive means, and that sounds quite subjective.”
Dentons director of technical services Martin Tilley adds: “It’s an enormously difficult thing to put on the FCA because they are meddling with contract law.
“This is an example of an ill-informed Government pandering to the messages of tabloid journalism.
“I can’t see that it could be implemented easily, or efficiently, or without doing more damage to the pensions industry while the Government is also trying to encourage people to save for retirement.”
Others have backed the plans, however.
AJ Bell chief executive Andy Bell says: “An early encashment penalty that gets in the way of someone accessing the pension freedoms feels wrong. We’d prefer to see a complete ban but a cap to prevent excessive charges is a big improvement on where we are today.
“It is debateable whether some exit fees really do relate exclusively to initial set-up costs or whether they are actually about ongoing provider profitability. In reality the charge was baked into the contract many years ago to ensure the provider made the requisite amount of money out of the product.”
Hargreaves Lansdown head of pensions research Tom McPhail adds: “Hundreds of thousands of pension investors currently face charges and restrictions if they want access to the pension freedoms or to transfer their money to a new pension arrangement.
“In some cases these penalties can run to hundreds or even thousands of pounds. This kind of financial bondage has no place in the 21st century.”