Treasury empowers FCA to curb exit charges

Access to pension savings permissible under freedom and choice has met staunch criticism since the industry entered into the new flexible era last April.

Many schemes have found it difficult to offer full pension flexibility, forcing some members to transfer to a different arrangement in order to access their savings through more flexible arrangements.

It’s not fair to trap savers into unfair and unreasonable pension arrangements… if providers aren’t prepared to play ball on this

Malcolm McLean, Barnett Waddingham

In June, the Treasury announced it would launch a consultation on easing pension transfers and capping exit fees charged to savers looking to take up new flexible options.

The paper that followed in July put forward three possible options:

• A cap on all excessive early exit fees;

• A flexible cap in certain circumstances;

• A voluntary approach to restricting exit fees and charges.

In today’s announcement, the Treasury awarded the FCA full responsibility for setting the level of the cap, to be established following further consultation with the industry.

Price control journey

Tom Barton, partner at law firm Pinsent Masons, said the move is just the next step in the “price control journey”.

“It’s a fairly understandable move by the Treasury,” he said. “It helps deliver on their policy objective with pension freedoms by removing a perceived barrier.”

In the new environment, savers should be able to access their money without “paying through the nose" for the privilege, Barton added.

Malcolm McLean, senior consultant at Barnett Waddingham, said the shift to curb exit charges will not happen overnight, due to the need to create new legislation, which would likely override many existing contracts.

“It’s not fair to trap savers into unfair and unreasonable pension arrangements… if providers aren’t prepared to play ball on this,” he said.  

McLean said the level of the cap was down to the FCA to implement but said 1-2 per cent should be an “absolute maximum”.

Ironic 

However Henry Tapper, director at consultancy First Actuarial, said today’s statement gave no indication of how and when the FCA would impose its new powers. 

He also said the government's position in this instance is at odds with its recent communications wrangle surrounding the recalibration of the women's state pension age. 

"It's kind of ironic," he said. "It's difficult for the government to argue in one case that the financial services industry should be explicit about everything they do and make it totally clear about the implications of retiring early... but at the same time put their hands up and say, 'It’s nothing to do with us, guv, we told everyone at the time' when it comes to retiring from the state pension scheme (early).”