Pension transfers and early exit charges: Citizens Advice response to the government consultation on pension transfers and exit fees

Six months on from the introduction of pension freedoms, it is worth noting how far we have come. Over 200,000 people have accessed their pension savings for the first time and more than 20,000 have used the new Pension Wise one-to-one guidance service. Many consumers have enjoyed a smooth process, got the specific products they wanted and avoided exit charges.

However, for a significant minority the experience has been very different. We want all consumers to have good experiences accessing pension freedoms and our consultation response [ 0.6 mb] is therefore calling for improvements in four key areas:

• Exit charges: High charges are seen as unfair by consumers and can damage confidence in pensions. We estimate that more than 2 million consumers will face a charge of over £50, while 896,000 could face exit charges above 5%.
• Delays: It is important that consumers don’t suffer from unnecessary delays when withdrawing their pensions.
• Advice requirements: Advice requirements should be clearly communicated with consumers.
• Product choice and shopping around: We have seen many pension customers who have been frustrated that providers will not let them withdraw their savings as they wish.

We make the following recommendations:

• Charges should only be permitted for genuine administrative costs of exit or transferand should be capped below £50. It is in the interests of consumers, government and pension firms for charges to be reasonable.

• A maximum pension transfer time limit should be introduced. We believe 15 days could be a reasonable target, but government should work with industry to understand how this could be done and what limit could be used without increasing threat of scams.

• The government should clarify advice requirements for providers and review how consumer protections around GARs can be improved. The current approach is frustrating consumers and may be counterproductive.

• Providers should review their communications around advice requirements to ensure that consumers understand exactly why they are being told to pay for financial advice before accessing their savings.

• Product choice and comparison should be improved. Providers should continue developing products to support pension freedoms so that consumers can be pointed towards comparison tools to find products that suit their needs.

• The governance and regulation of decumulation products should be strengthened to ensure consistently high standards across accumulation and decumulation as well as across trust and contract base.

• Market Value Adjustments should be clearer. Where MVAs or other investment deductions are applicable, providers should make the exact cost and the date when they can be avoided clear to consumers.