Savers set to benefit from change in pension rules
Prudential’s plans to scrap controversial early exit fees could offer significant savings to workplace pension customers.
Prudential customers received good news last month with the news that the insurer plans to scrap early exit penalties for workplace pension schemes and reduce charges by an average of 15%.
The move was announced in Prudential’s Independence Governance Committee’s (IGC) first annual statement, and appears to be part of a wider industry trend, with competitors such as Standard Life, Aegon and Scottish Widows also announcing plans to review their penalty and fee policies.
These changes have been introduced to tackle the somewhat controversial topic of early exit fees.
Early exit clauses force pension holders to pay a percentage of their total pot if they access their pension before a specified age, and are mostly found in pensions contracts issued in the 70s and 80s. It is estimated that around 700,000 people could be affected by these penalties, with some people potentially losing up to 20% of their pension pot.
In January, Chancellor George Osborne announced plans to reform the law to allow customers to have early access to their savings, without being penalised by excessive exit fees. It is thought that these regulations could take up to two years to come into force, but it seems that insurers such as Prudential are getting ahead of the game.
So what do these changes mean for savers?
From April 2016, Prudential customers who wish to access their money sooner than their contract stipulates, can do so without facing the prospect of hefty exit penalties – a change which could save some people thousands of pounds.
Alongside the scrapping and capping of fees, customers can also expect to see an increase in the allocation rate to ensure that 100% of contributions are invested, as well as the removal of all charges relating to adviser commissions. These additional changes will come into effect from October this year.
Unfortunately, all these changes currently only apply to workplace pensions, and personal pension customers will not see the same benefits.
Gary Keeley from The Workplace Pension Consultancy, explained: “The IGC has also identified several products which it feels are issuing unfair charges. Both self-invested customers and paid-up members of workplace schemes with less than £10,000 saved have to pay a fixed monthly administration fee which the IGC views as potentially too high. As a result, Prudential has committed to contacting those affected customers to explain their options and give them the opportunity to switch products.”
Those customers with small pension pots have also not been forgotten. Earlier government plans for a ‘pot follows member’ system may have been dropped, but Prudential’s IGC has revealed that it will be looking at ways in which the company can help this particular group of customers.
Ensuring value for money
Prudential’s IGC has been keen to stress that value for the customer has been the driving force behind these changes.
Lawrence Churchill, Chair of the ICG, said: “In our view what ultimately matters is the outcome for members, and I am pleased with the positive strides we have been able to make with Prudential, particularly in relation to charges, to ensure that members are getting value for money from their workplace pension savings.”
And it seems that there are more changes in the pipeline. Over the next year, the IGC will be reviewing the communications and services received by members, as well as examining how and where their money is invested. In this way, they hope to ensure that pension holders receive a high quality service and maximum value for money – which can only be good news for savers.