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Webb hints at provider reprieve over ‘huge’ exit penalties

Pensions minister Steve Webb has suggested insurers will not be forced to amend contract terms which impose high exit charges amid concern some savers will effectively be blocked from accessing new freedoms announced in the Budget.

From April next year, savers will be able to withdraw their whole pension pot as cash from age 55.

Last month, Money Marketing revealed savers with old-style pension plans could face severe penalties if they want to transfer to a new policy to take advantage of the changes.

During Work and Pensions questions in Parliament today, shadow pensions minister Gregg McClymont asked what the Government was doing to ensure “huge exit penalties” would not stop some being able to make use of the new rules.

Webb said: “It is important not to exaggerate the scale of this, but clearly a minority of schemes have contractual terms which relate to the basis on which money can be withdrawn from those schemes. We are not overwriting the rules of existing scheme but we are talking to the industry to ensure as many people as possible can access their cash.”

Webb also defended the “no limits” guidance guarantee which savers will be able to use as many times as they want once they reach 55.

Labour MP Robert Flello said concerns remain over various elements of the proposal, including the industry levy that will fund it and whether it would be ready by April next year.

Flello said: “The pensions industry still expresses concerns about funding the guarantee levy, whether the service will really be ready in time and how the scheme will operate. From the consumer perspective, I believe there are still widespread concerns about how the scheme will operate and whether it will be ready in time.

“Given [choosing a pension] is one of the most important decisions people will face and there is real concern they will receive guidance and think it is advice, or that the guidance won’t be comprehensive enough, what is the minister going to do to make sure this works properly and quickly?”

Responding for the Government, Webb said: “We are very actively engaged in making those preparations. It is a tight time scale, we entirely accept that. But I would contrast what we are proposing with the current situation where hundreds of thousands of people reach an age to choose whether or not to buy an annuity and get no guidance, advice or help whatsoever.

“This proposal will be free, it will be independent guidance for people [which is] face-to-face if they want it. It will be a vast improvement.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Sounds like he’s had his wings clipped by a few pension providers but I do think that he will find (if he doesn’t already know) that the problem is a lot larger than he suggests.

    However, I am with the campaign to put an end to the situation for certain plans (I have one of these plans myself). At the time it was either a contract with initial/accumulation units or a heftily front-end loaded plan. I had no objection to an increased AMC on my first two years units (for its lifetime), as long as the plan delivered competitive returns within its sector and was adequately managed for the elements which I held within it’s with-profit and managed funds.

    With the onset of lower cost plans, I took the decision to move the underperforming managed fund element to another provider and I accepted the contractual position at the time for this element of my pension.

    Little did I know that my company would exit the pensions market within 10 years of my starting the plan, leaving behind a ‘cash-based’ with-profit fund, which achieved little if any growth during some of the best years for equity markets that we have known, alongside a regulator that seemingly sat on its hands over the matter when advised of this.

    I think that my provider has made their money at the expense of providing a robust investment strategy for many years and if for no other reason, this is why the exit charges for transfers from such plans/funds should be removed, particularly in the instances where with-profit investors found themselves locked into the position which I have outlined above.

    I talk about one company but I think we can name a fair few ‘big’ providers who fled to cash in with-profit funds after the 2001/2002 stock-market crash, effectively closing the stable door behind their plan-holders for a decade and leaving hefty MVR’s which had no real hope of lowering themselves.

  2. good day for golf 1st September 2014 at 8:41 pm

    If they think it does not effect many then why not just let people have their money with no penalty?
    I think its because its a dam site more than just a few

  3. Tee hee. ““We are very actively engaged in making those preparations.”

    Note: not “doing this”. Which would make Steve lose face if it doesn’t get done. Or even “preparing to do this”. Which would make Steve lose face if the people responsible weren’t doing it, but were instead twiddling their thumbs and playing Words With Friends as they burnt through our £20m+. But “actively engaged in making those preparations [to do this]”. What does this actually mean? Nothing. It’s not even planning – it’s intending to plan, at some point. Maybe.

  4. But surely the key issue on exit charges is are they clearly defined in the contract? If they are, then they’re defensible and shouldn’t be arbitrarily overridden.

    If they aren’t, then what Webb and his team should be addressing is providers exercising unreasonable discretion and imposing whatever terms they feel like on the day.

    On what data is Webb basing his claim that only a minority of pension schemes have contractual terms with exit penalties in them?

    One would think that it shouldn’t be too huge an exercise for the regulator to require providers to submit their early exit terms for scrutiny. Any that allow the provider a free hand to impose whatever terms it feels like on the day should, it might be argued, be made subject to a maximum scale of exit charges, perhaps no more than 1% of the policy value for each year of vesting prior to the originally written retiring age. It’s hardly rocket science yet, as so often with government policy on just about anything, there seems to be a wearisome lack of cut-the-crap thinking to get to the heart of the problem and devise a straightforward solution.

  5. And what about GARs and the less than TCF conditions attaching to them?

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