Bringing you live news and features since 2006 

Scrap all early encashment penalties on UK pensions that don’t offer freedoms, says AJ Bell

RELATED TOPICS​

In response to the Treasury consultation on pension transfers and early exit charges, AJ Bell has called for all early encashment penalties that block access to the new pension freedoms to be scrapped.

The ability to withdraw money from a pension without constraint has revolutionised pensions and reinvigorated customer engagement.  Anything that gets in the way of savers being able to benefit from that change should not be allowed.   

Where an individual who has reached age 55 is in a pension product that has not been updated to allow access to the pension freedoms, early encashment penalties should be banned.

The FCA review seeks to ensure that there are no barriers to people accessing the new pension freedoms, in particular excessive early exit penalties.

AJ Bell believes that pension exit costs should be relevant to the work carried out by the provider today, set at a reasonable level, clearly disclosed and not prevent people accessing the pension freedoms. Early encashment penalties on some old style life assurance products do not meet any of those requirements.

Limiting the ban on early encashment penalties to individuals who are over 55 and where access to the pension freedoms is being blocked will lessen the immediate impact on providers. 

Billy Mackay (pictured), marketing director at AJ Bell, says: “The main reason given for exit penalties is to cover initial costs but you have to question whether it is reasonable to still be collecting charges for events that may have happened around a quarter of a century ago. 

“It is debatable whether some exit penalties really do relate exclusively to initial set up costs or whether they are actually about on-going provider profitability. In reality the cost was baked into the contract many years ago to ensure the product was profitable over a range of customer circumstances. 

“This challenge has proven to be the elephant in the room for many years. Change will only happen if you can balance the needs of the customer with the financial consequence to the provider. Limiting the ban to penalties beyond the age of 55 where there is no access to the new pension rules therefore seems sensible.”

Latest News

ETF data consultant ETFGI reports that assets invested in the global ETF industry reached a new record of USD12.71 trillion..
Calastone has published an ETF white paper which examines several of the processes that take place across the lifecycle of..
Adapting product lines to fit into changing methodologies and meet shifting demand is essential to remaining relevant in the industry..
Investors urgently need greater access to diversified investment strategies aligned with the Paris Agreement on climate change if the world..

Related Articles

Taylor Krystkowiak, Themes ETFs
Themes ETFs opened its doors in December 2023, with an introductory suite of 11 ETFs – seven thematic and four...
Konrad Sippel, Solactive
At the end of March, financial index specialist, Solactive, published its 2024 annual report on future trends.  ...
Lorraine Sereyjol-Garros, BNP Paribas
Following changes to the French Monetary and Financial Code and of the French market authority AMF’s General Regulation, it is...
Ed Rosenberg, Texas Capital
Texas Capital Bank first opened its doors back in December 1998 and nowadays offers wealth-management services, as well as commercial,...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by