Switching pension cash to a QROPS has just become a lot cheaper for thousands of retirement savers.
Some of Britain’s largest pension firms have pledged to slash early exit charges after Chancellor George Osborne warned them he would bring in new laws to cap their costs.
He wants to see pension providers give savers the chance to switch their funds to other firms to make his flexible access rules work easier – but an unintended consequence is transfers to QROPS pension will also become cheaper as well.
In thousands of cases, pension savers over 55 who wanted to draw money for their funds were obstructed because their current provider was not offering flexible access and set exit charges at between 5% and 10% of the fund value for some consumers.
Osborne warned that the new laws were on the way – but expected them to take up to two years to hit the statute book.
Government pressures financial firms
Meanwhile, Whitehall has put behind-the-scenes pressure on the companies who have buckled under the stress and agreed to cut their fees straight away.
The main factor believed to have influenced their stance is Osborne announcing an investigation into pension exit charges by the Financial Conduct Authority.
Prudential, Standard Life and Prudential have all agreed to put a ceiling of 5% of the fund value on exit fees.
LV= has also indicated that fees would be capped for customers.
“We’re doing it because it’s the right thing to do,” said a spokesman.
Rip-off fees on pensions, says Osborne
Royal London, the largest pension mutual business, has promised to limit charges as well.
“Only 3% of our customers paid exit fees between April and December 2015,2 said a spokesman. “We constantly keep this under review and will only make a deduction to recoup underlying costs when the amount is fair and the company does not profit from the charges.”
The companies argue that they need to charge the fee to cover commission paid to financial advisers who sold the plans.
Consumer watchdog the FCA worked out 670,000 over 55s would face exit charges of more than 5%.
“The government will not allow financial firms to rip off customers who have spent their working lives saving hard for retirement,” said Osborne.
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
