November 2016 has seen the announcement of two initiatives designed to improve consumer protection in the pensions arena.
Firstly, the regulator, the Financial Conduct Authority (FCA), has announced that exit charges on existing personal pension plans will be capped at 1% of their value. The rules, to be introduced from March 31 2017, will also apply to workplace group personal pensions and to self-invested personal pensions, and the restrictions will apply regardless of whether the planholder is taking benefits from their pension or is transferring their pension benefits to another plan.
Where a plan currently has exit charges of lower than 1%, the provider will not be permitted to increase these charges.
In addition, providers will not be able to impose any exit charges whatsoever on personal pension plans entered into after March 31.
This announcement is only of relevance to consumers who have reached the age of 55 – the age at which retirement savings can normally be accessed.
The Treasury had previously said that significant exit charges on personal pension contracts were a significant barrier preventing consumers from making full use of the Government’s pension freedoms. There have been reports of some providers imposing exit charges of as much as 30%.
The Department of Work and Pensions has suggested it is likely to extend the cap to occupational pension schemes from October 2017.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:
“People eligible for the Government’s pension reforms should feel able to access them as they wish. The 1% cap on early exit charges for existing pensions, and the 0% cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”
Pensions Minister Richard Harrington MP said:
“We are restoring fairness and creating a level playing field in a system that has favoured the interests of providers over consumers for too long. This new cap will protect people’s savings from excessive charges, so more of their money will go towards the comfortable retirement they have saved for.”
Consumer groups also appear to have achieved a major victory in forcing the Government to ban cold calling related to pensions. The introduction of the pension freedoms led to a huge increase in calls from firms offering ‘pension review’ services or similar, and many of these ‘reviews’ are reported to involve scams or highly dubious attempts to persuade people to transfer their pension savings to very high risk investments. The Treasury estimates that UK consumers lost £19 million to pension scammers in the 2015/16 financial year.
Under the new plans, firms will only be able to make calls regarding pension services to clients with whom they have an established business relationship. This means they will not be able to cold call anyone who may simply have opted in to receiving marketing communications at some stage in the past. Firms that flout the ban could face fines of up to £500,000.
The Treasury’s statement on its proposals reads:
“Philip Hammond will use this week’s Autumn Statement [which was delivered on November 23] to announce the Government’s intention to ban pensions cold-calling, protecting millions of vulnerable people and cutting off the main route through which cowboys trick people out of their life savings.”
The Government will initially conduct a consultation on its proposals, before announcing the next steps in its Budget in March 2017.
Initially at least the ban will only apply to telephone marketing, but the Government is to look at extending it to texts and emails in the future.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.