1 in 6 six pensioners hit by £5,000 fee when cashing pension in

17 September 2015

pensioner We blorted on about what to expect from the new freedoms around pensions, but as ever, there's a catch. We spoke about the charges and tax consequences, and thanks to new figures, we see that 1 in 6 people over 55 will be hit by exit charges of (up to) £5,000 if they want to utilise new pension freedoms.

Around 700,000 people are going to have to pay if they want to get at their savings, and over 100,000 of these will pay more than £1,000, with 13,000 of them having to cough-up as much as £5,000. A lot of pensioners who have worked hard to have these savings could be charged even if they stay with the same pension firm, but want to switch to a more suitable, flexible product.

While it was a nice idea to let those with pensions use them like a bank account, it seems the financial institutions are imposing very steep penalties for those who want to. What a surprise eh? Finance companies acting like thundering arseholes!

Official data from the Financial Conduct Authority shows that around 670,000 over-55s are looking at charges before they can take their money. The FCA published this data, saying that they want pension firms to publish explicit details of all exit fees.

These exit fees are not the same as annual management charges, which pensioners will also have to pay for if they withdraw some money from their savings.

The FCA's findings show that 204,500 pension policies have been accessed in the months following the reforms. However, with many pensions being started in the days before transparency about charges, many people will be finding out that fees could really hammer away at their money. There's also the small matter of a lot of pension scams knocking about. It is thought that there's been over 10,000 people who have reported these scams to regulators.

160 potential frauds are being looked at by the FCA, and they've launched full investigations into five, which now involve the police.

TOPICS:   Banking   Investments   Government

1 comment

  • James E.
    I quote you "What a surprise eh? Finance companies acting like thundering arseholes!" If only it were this simple. You do not understand the situation at all! When most of these people took out their pensions, the standard commission paid to "Financial Advisers" including so called "Independant Financial Advisers" was up to 50% of the first year's contribution, usually spread over two years. How was this paid for? Was it the Insurance Company? Of course not! It was paid by the people who took out the pension plans in the first place and passed on to the various sales people involved be they direct sales or "independant". This created a marketing dilemma; if you told people how much was being taken from their contributions, would they buy the product? or do you hide it? Of course, most providers chose to hide these costs from the policyholder. For example, Hambro Life (now St. James's place, and still hiding their fee structure even today!), Abbey Life and many others chose the Capital Unit/Initial Unit approach which was an exercise in using "present value" calculations to obscure non-investment in the first two years. Others, such as Scottish Equitable chose really sneaky ways to hide these costs that even consulting actuaries had difficulty in coming to grips with! Was all this really necessary? If you were a pensions provider, absolutely. Only a couple of providers chose to show these upfront costs explicitly, one of which was CU Life. Their market share fell to 0.7% because financial advisers chose those companies who hid the costs. Had people chosen "Front End Loaded" pensions like those offered by CU Life, they would now be in a position to walk away without any extra "Exit Fees". These "extra" fees are really nothing of the sort, they only reflect the lack of initial investment that was paid out to financial advisers as commission; so, nothing is being taken away as it was never there in the first place! So, who is to blame? Is it the pension providers who were looking to maximise sales by giving financial advisers what they wanted i.e an "easy" sale or the financial advisers who knew, or should have known, that people were actually not getting what they thought they were paying for or, dare I say, the people who bought these pensions without giving a thought about what they were doing? In any event, the commission was paid out to sales people, tied or untied, and they have kept it all. Maybe you should give a thought to asking whether these people should pay back their commission rather than insisting it is the pension providers who should.

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