Using data collected on the UK pension market since April, the regulator found 84% of consumers eligible to access their pension savings – or 3.4 million people – would not pay an exit charge.
Of the remaining consumers, 358,000 aged 55 or over would face an exit charge of 0%-2%, 165,000 would be charged 2%-5% and 147,000 would face a charge greater than 5%.
At the extreme, 4,000 consumers would face a massive 40% charge on exit.
This analysis represents a snapshot of potential exit charges as at 30 June, from 107 life insurers, investment companies and SIPP providers.
The report, ‘FCA pension freedoms data collection exercise: analysis and findings’, concluded that the higher proportion of those under 55 not attracting an exit charge may be due to them being in newer products, which had different charging structures in place.
Those most likely to incur an exit charge were those who have paid up their policy in full.
The most commonly cited reason for the existence of exit charges was to cover outstanding initial expenses and/or initial commission.
“That is, the charges are intended to recover sunk costs rather than the administration cost to the firm of the customer transferring or cashing in their policy,” the report said.
Billy Mackay, marketing director at AJ Bell, said: “The main reason given for exit fees 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.
“Exit fees should be relevant to the work carried out by the provider today and set at a reasonable level. It is debateable whether some exit fees really do relate exclusively to initial set-up costs or whether they are actually about ongoing provider profitability.”
Beyond exit charges, the FCA looked into consumer access to pension freedoms, financial advice requirements and pension transfer procedures in general.
Claire Trott, head of pensions technical at Talbot and Muir said: “[Being forced to move contracts] can have serious impacts for people with historic pensions where they may have protected cash or even early retirement ages.
“Moving a contract from one scheme to another is a serious undertaking, people should not be forced to move because systems aren’t being updated on their scheme.”
