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Osborne hands FCA duty to cap ‘excessive’ exit fees

George-Osborne-direct-photo-700.jpg

Chancellor George Osborne has told the FCA to cap “excessive” pension exit fees.

Speaking in the House of Commons, Osborne said while the pension freedoms had been welcomed by savers, the Government remains concerned that roughly 700,000 people face early exit penalties if they move their savings.

Osborne said: “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.

“We will change the law to place a duty with the FCA to cap excessive early exit charges from pension savers. We are determined that people who have done the right thing and saved responsibly are able to access their pension savings fairly.”

The announcement follows a 2015 consultation from the Treasury on potential mechanisms for a cap, while pensions minister Baroness Ros Altmann has also been vociferous in her calls for improvement from the industry.

Speaking to the Telegraph in October 2015 Altmann said: “There are some insurers being fair, writing off some of their back book and bringing down the old legacy charges – that’s great, they get it.

“My message is – if you don’t look after your customers, then whatever Government does to get people into pensions, they are not going to stay.”

The FCA will be responsible for setting the level of the new cap, with a consultation expected shortly.

Figures from the regulator have found that 670,000 consumers aged 55 or over faced some level of early exit charge.

Of these, 358,000 faced charges of up to 2 per cent; 165,000 faced charges of between 2 per cent and 5 per cent; 81,000 faced charges between 5 per cent and 10 per cent; and 66,000 faced charges above 10 per cent.

Hargreaves Lansdown head of pensions research Tom McPhail says: “We welcome this announcement. This kind of financial bondage has no place in the 21st century.”

Association of British Insurers long term savings policy director Yvonne Braun says: “We note the announcement by the Chancellor today that he plans to introduce a new duty on the FCA to cap exit charges on pensions.

“As the FCA acknowledge, more than eight out of ten customers do not have to pay early exit charges to access their pensions. Where they do, most fees are below 5 per cent and were put in place decades before the freedom and choice reforms were introduced.

“We will engage closely with the FCA and Treasury on this issue going forward.”

An FCA spokeswoman declined to comment.

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. Must remember this the next time I don’t feel like paying a bill. Yes I know I agreed to pay and I know I have a contract which requires me to pay but if George feels it o.k to drive a coach and horses thru freely agreed contracts well why should I ? after all the FSA/FCA also saw fit to change trail contracts with platforms and….. everyone is doing it now so why not me. My word is no longer my bond.

  2. Frankly looking at the events of the last 12 months it would appear we no longer have the rule of law in the UK when its suits. These are contracts written and entered into in good faith. If you bust these contracts what’s to say all contracts are not legally binding?

    The continual changes to pensions, including the state pension has and is causing total frustration and confusion for everyone.

    It is time to take a little time out and really think through your ideas, listen to those that really do understand and implement something that is both sustainable and understandable.

  3. Well if the FCA is independent it looks to me as though Mr O has just told it what to do. or am I missing something here?

  4. Osborne said: “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.

    “Unless of course that is a result of my tax take on early accessed monies” he added (no course he didnt) 🙂

  5. I wonder how long it will be before the FCA tells us what an acceptable level of exit fees is ? For now I guess we just have to park affected clients until we have some clarity, wouldn’t want them to pay an exit fee now that is waived in the future once laws are rewritten to suit. Bet ambulance chasers will be looking at this with interest ! Pity the chancellor doesn’t take the same axe to F-pack budgets.

  6. But we are told to believe that Osborne didn’t lean on the FCA re making it easier for the banks to get back into product flogging.

  7. i wonder if for fairnesses sake he will also allow firms to change “unfair contract terms” that were acceptable 20-30 years ago but are incredibly unrealistic today. such as guaranteed annuity rates. hopefully not, but it would seem that it is one rule for one and not for another. Also agree that the biggest exit charge on any pension encashment is clearly going to be that taken by HMRC.

  8. Mr Osborne, you are supposed to review the effects of legislation and prepare or amend laws before you implement tax generating mass churning. Surprised the FCA supported you in this, or is that why you got rid of the last FCA head? If the UK public are as stupid and ill informed as you presume, why is it only you who can introduce rip offs.

  9. I wonder whether these changes might mean that some businesses go bust….now that is a real political quandary for him

  10. If people are to be able to extricate themselves from contracts willingly entered into many years ago without paying the large exit penalties, is the writing on the wall for divorce lawyers?

  11. It’s comedy gold, except that it is a serious matter.

  12. Ha ha ha ha ha ha ha is about all I can muster on this one

  13. This bloke is a Tory isn’t he? I do wonder.

  14. PS How about capping the price of wallpaper?

  15. Isn’t the LTA an exit charge? And that’s affecting lots more from April 16. 3rd para makes me cringe. And angry! So it’s ok for Osborne to do it.

  16. Great, how about scraping early mortgage repayment penalties. FCA take note !

  17. Maybe they should also re-calculate guaranteed annuity rates and past With Profit bonus rates.

    It is amazing how the politicians use ‘pensions’ to cover over their lack of any ideas on stimulating the economy, Tories and Labour, and in the case of the Tories to deflect from their lack of action on Banks.

    If the government wants the FCA to implement political decisions then it should be paid for out of taxes not the industry.

  18. Hargreaves Lansdown head of pensions research Tom McPhail says: “We welcome this announcement. This kind of financial bondage has no place in the 21st century.”

    But it’s okay for Hargreaves Landsdown to impose exit fees on people who wish to encash or transfer their ISA’s is it?

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