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Webb turns screw on providers over legacy charges

Pensions minister Steve Webb has once again threatened to “name and shame” providers who refuse to tackle legacy issues.

Pressure has been growing on providers to tackle old, relatively expensive schemes since an audit found up to £26bn of assets subject to charges over 1 per cent. 

A 0.75 per cent cap on auto-enrolment default schemes is to be enforced from April this year.

Speaking at the ABI retirement conference today, Webb revealed he had consulted lawyers over whether he would be able to publish the names of firms reluctant to move customers from old schemes to cheaper modern plans.

He said: “I’ve had conversations with all the main providers who make up that £26bn and there is a huge variation in the vigour with which providers are tackling that. 

“Some of them engage enthusiastically, set up their plans with how they’re going to deal with it, but other providers wanted to change the subject, which is pretty dismaying.

“If the industry is going to get its act together it’s got to realise its legacy is a stain and unless there’s a concerted, vigorous attempt to deal with it it’s going to be very hard to move forward.”

Webb added if providers remain uncooperative, he would be forced to name them.

He said: “If there are providers who I don’t believe about tackling their legacy I will be forced to say who they are and who they are not, to applaud those who are serious and name those who are not. As you can imagine, my lawyers have a view on this. So I want to make sure that I’ve got this right.”

Earlier in the day, ABI chairman and Axa UK group chief executive Paul Evans claimed regulation was blocking providers moving customers from legacy plans to modern schemes.

But FCA director of long term savings and pensions Nick Poyntz-Wright denied regulation was getting in the way.

He said: “There is a challenge for providers to say rather than continue to operate these more traditional, old-fashioned, relatively high charging schemes, can’t we just put them onto our more modern platforms?

“We’re certainly supportive of that in principle. We’ve worked closely with a number of firms in other products areas and the issues actually tend not to be regulatory but legal or contractual.

“I’m not pretending those are easy but it might require the firm to accept some residual legal risk. Often it’s very small but it’s a judgment call for the firms as to whether that’s the right thing to do. It would be quite unusual for that to be a regulatory barrier.”

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Comments

There are 10 comments at the moment, we would love to hear your opinion too.

  1. As I’ve said all along, the first thing that needs to be examined is the contract wordings of these old policies regarding their exit terms to establish whether or not the providers in question are taking unreasonable advantage of woolly clauses that afford them free rein to impose whatever penalties they please for each and every case. Once those have been identified, attacking bad practices of that nature could be given priority.

    For policies on which the early exit terms are explicitly spelled out, a different line of approach could be taken, perhaps directing the providers to facilitate access to external funds much better than their own.

    Just telling providers they must change their ways or they’ll be named and shamed isn’t really going to make much difference. Said providers will just shrug their shoulders and say SBW? We’re not writing new policies so why should we care?

  2. @Julian – I agree. Two solutions to a problem, we just need the FCA to be prodded by the consumer lobby, but then so many of them get their advertising from said insurers so it is easy to blame the workman than the tools on this occasion.

  3. Don’t need long study or 2 approaches – contracts need to be fair and clear – at today’s understanding if they would not be used/allowed now then change them now for the future.Most insurance companies with legacy issues are little better than rogue traders – name , shame then ban them is what he should do.

  4. I think for the really old contracts (70s-80s) that are on archaic systems, this feels like the right thing but people probably underestimate the logistic and legal hurdles with trying to move system. For the contracts in the 90s, having worked in a life office back in the early 2000s I would have to say that most of the 1%+ charging GPP structures were to fund high commission levels, some obscene (I’m pretty sure the cap was set at 75% of the regular premium on one contract… plus renewal!). It’s not an excuse to keep charges high but as with Active Member Discounts, once again providers will ultimately foot the bill for financial advice. For all it’s critics, RDR was a necessary evil to force some common sense upon the industry.

  5. Why do people who have never run a business seem to think because they say something should be done it will be done?

    Will Mr Webb reimburse the life offices the commissions paid out?

  6. Unwinding leacy systems is never easy especially if there are tied in with outsourcing contracts. Sometimes the cost to move is millions.

  7. I think Mr Webb is getting paid to much in his contract as minister.
    This then should be sorted out and he should refund us half his salary.

  8. I think that providers have more than had their fair share of remuneration from these older contracts and commission costs have been more than recouped for sure. However, contractual terms should not be ignored and Mr Webb should deal with it quietly, professionally and properly rather than shouting ‘foul’ for all to hear.

    A fair solution would seem to be for the providers to now do the right thing and allow freedom of movement without penalty outside of the contracts, but TCF was never really a roaring success with some companies was it?

  9. Having reviewed hundreds of older pension funds for new clients looking at consolidation and ‘at retorement’ I can confirm that many of these plans carry heavy exit penalties that are contractual. So either way, the pension providers will recover their charges.
    Apart from that, many of these old plans are extremely profitable for the roviders, particularly when compared to newer, low cost alternatives, and I imagine that the profit has already been taken into their accounts. I can’t see these providers rushing to facilitate transfers that will have a massive detrimental effect on their profitability.
    We are also seeing some plans that still carry extremely costly initial or capital units that simply decimate the apparent fund value, resulting in derisory transfer values. Once again, these are contractual and I don’t see how any government legislation can override these outcomes other than on a case by case basis.
    Apart from that, the FCA regulations concerning pension switching and pension transfer advice, make it extremely difficult for authorised advisers to give suitable advice to clients that will result in apparent losses to the investor.

  10. He is so concerned about his legacy, not policyholder legacy.

    I hope he tries to name and shame outside parliamentary privelidge and someone takes him to the civil courts.

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