LONDON — Online pension manager PensionBee revealed the sky-high exit and management fees charged by some providers, and called for more to be done to protect savers.
The company tracked 1,800 pension transfers from 20 providers, compiling the data into a “Robin Hood Index” of the best and worst performers.
The Index found NOW:Pensions, one of Britain’s biggest providers, charges annual fees of 10.4% on average (based on 173 cases), while Friends Life and Phoenix Life charge exit fees that can be over 70% of a pot’s worth (based on 238 and 29 cases respectively).
“Some providers are determined to stay stuck in the seventeenth century” and to “trap customers,” says PensionBee CEO Romi Savova.
Although workplace pensions charges are capped at 0.75%, providers can circumvent this using a combination of charges and fixed fees. Over time, such high fees can erode small pots to nothing.
PensionBee’s study also found that although nearly two thirds of providers have 12 day transfer periods, the average could be up to 49 days. According to Savova, while only a quarter of the providers studied charge exit fees, those who do often also charge high management fees, explaining why many customers are willing to pay.
In November last year, the Financial Conduct Authority introduced a 1% cap on early exit fees for customers over 55. But this is not enough, says Savova, since it unfairly penalises young people. The government talks about giving people greater freedom over their retirement, she says, but barriers of this sort send “mixed messages.”
There has also been a rise in pension-related scams since the relaxation of pension rules in April 2015, which allowed over 55s to withdraw more regardless of their income.
Scammers, says Savova, tend to target people desperate for cash in the short-term and often operate in broad daylight: “the government has been too slow to act,” she says.
“The worst thing for pensions is that the industry gets a bad reputation,” she says, pointing out that customers can choose to use ISAs instead.
PensionBee launched just over a year ago, and manages more than £100 million in assets. It has around 40,000 customers, and accounts work like a bank account: customers can see a live balance, make contributions online and use a smart calculator to plan their savings.
PensionBee’s study was based on information gathered from current customers, as well as customers who considered switching but decided not to. Although PensionBee’s typical customer is in their late 30s, the Index surveyed customers across a range of ages.
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