Pensions - Articles - Pensions exit fee cap ? PwC insurance team comments

 Commenting on the Chancellor’s announcement, Jonathan Howe, UK insurance leader at PwC, said: “Today’s announcement shows continued commitment from the government to deliver greater freedom to pensioners. The Pension Freedoms, which came in to effect in April 2015, were a first step in giving customers more control over their pensions – if 2015 was about annuity reform, 2016 will be about fair charges and treatment of long standing customers.”

 We still don’t know precisely how the exit fee cap will work - that task falls on the Financial Conduct Authority (FCA) to work out - but if the focus is, as stated, on “excessive charges” the actual number of contracts affected by this announcement could be relatively small. For example, if the FCA placed the cap at 5% of the value of a pension, less than 4% of contracts would be affected. If the cap is introduced at a rate lower than 5%, many more customers could benefit.

 Exit charges are more common in older-style “legacy” pensions, meaning firms which have a larger proportion of legacy business will be paying close attention as details unfold.

 Today’s announcement paves the way for the FCA to finally announce its findings on the related topic of the fair treatment of long-standing customers. The regulator began its review into how customers are treated across life insurance and pensions back in 2014.

 We’ve still yet to see any findings - but the industry awaits the outcome with some trepidation.

 When taken together the pension charge cap and FCA review of long-standing customers demonstrate it is clear there is going to be no let up of regulatory focus for life insurers in 2016.”