As we reported last month, the Treasury has announced plans to cap “rip-off” pension exit fees in the next few years. However, as often happens, the mere act of threatening providers with new regulation is already driving them to change their behaviour. One problem following George Osborne’s pensions freedom changes was that many savers (particularly in older-style pensions) were subject to hefty penalties for withdrawing their pension earlier than an agreed retirement date.
In some cases, these fees may have been pretty much “plucked out of thin air”, according to The Daily Telegraph. Two weeks ago, the paper revealed that Aviva – Britain’s biggest pension provider – had admitted to doing just that.
One saver was quoted a number of different penalties, ranging from £6,000 to £10,640, before Aviva admitted it didn’t have the information necessary to calculate an accurate exit value. Aviva admitted it had made a “number of errors” and has now agreed to waive the customer’s penalty fee altogether.
But Aviva also said that it could not guarantee that other customers weren’t similarly affected and a number of savers have since come forward with tales of exit fees that simply don’t add up.The root of this problem lies in the diverse nature of old-style pension schemes.
Exit penalties were written into millions of pension and other policies sold between the 1970s and 1990s. And now, the Financial Conduct Authority (FCA) has estimated that some 2.2 million savers will face some form of early exit fee if they choose to withdraw from their pension fund under the government’s new pensions freedom rules. The older your pension plan, the more likely you are to be affected. And you’re most at risk if you were sold a with-profits or unit-linked plan in the 1970s, 1980s or 1990s.
The good news is that, as mentioned above, some providers are already acting ahead of the FCA. This week Scottish Widows announced plans to scrap exit fees across its workplace pension schemes and is “reviewing the exit charges on its individual pensions”, according to Professional Adviser.
Meanwhile, as we went to press, Aviva announced a 5% cap on exit fees on both individual and workplace pensions, according to Money Marketing. The move follows both Standard Life and Prudential, who have caps at 5% and “below 5%” respectively.
If you’re concerned you might face an exit fee, check your pension records with your provider. If they don’t seem 100% accurate, get another opinion and check that it is consistent. If you’re still not convinced, don’t be afraid to question your provider. Given the change in mood in the industry, you may even have grounds to have your fee waived.