Sipp firm expert: Exit fee cap likely unless providers act quickly

The pensions industry must act swiftly and decisively itself on ‘excessive’ exit fees or it will be forced to do so by new legislation, a Sipp firm expert says. Malcolm McLean, senior consultant at Barnett Waddingham, suggested a cap is highly likely if providers fail to show themselves capable of a sufficient response to the Government’s three-month investigation, launched yesterday.‘Excessive’ early exit charges have been placed at the heart of the probe into firms failing to make the new freedoms available to savers.The Treasury has called for solutions to tackle such penalties as it started aconsultation, with the aim to “ensure that people can access the new pension flexibilities easily”. Officials have asked pensioners and industry experts how to “remove other barriers”.Chancellor George Osborne and Secretary of State for Work and Pensions Iain Duncan-Smith have raised concerns that some companies are failing to play their part in making pension freedoms available to savers.{desktop}{/desktop}{mobile}{/mobile}Mr McLean said: “On exit charges there does appear to be a determination to reduce or even eliminate these by legislation, if necessary, if the industry shows itself incapable of dealing with the issue itself.“This is indeed a thorny issue which has been around for many years now and relates almost exclusively to older “legacy” schemes which clearly do not meet the standards we expect from more modern arrangements. The issue has now increased in profile because of the pension freedoms and the allegations that some firms are charging up to 20% of the value of the pension pot, making it difficult if not impossible for individuals to withdraw their money.“I am sure we would all like to see scheme members get the best value possible from their pension savings and unless or until that can be achieved voluntarily it is highly likely that the Government will seriously consider a cap on such charges for those aged 55 or above eligible to access the freedoms”.Claire Trott, head of pensions technical at Talbot and Muir, said: "The consultation interestingly excludes MVAs and other investment deductions when looking at early exit penalties, which in my experience is usually the high “charges” people are experiencing to take their benefits or transfer them out.“This may result in little need for the Government to legislate to reduce exit charges for those taking their benefits early or to reconsider the scope of the consultation.“MVAs and other investment deductions are there because of upfront charges being lower or past commission payments/additional allocation that has been given.“If they were forcibly reduced then providers could be losing out significantly on earnings they were expecting. In this current climate of constant regulatory change providers costs are higher than ever and this could have a significant impact on some.”

Sipp firm expert: Exit fee cap likely unless providers act quickly

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