Legal Expert Praises Clampdown On Old Style Pension Arrangements

A legal expert from law firm Irwin Mitchell has warned that while compulsion in terms of passing overriding legislation may be difficult, the Financial Conduct Authority (FCA)is right to “force”  pension providers to do more to help consumers unlock their old style pension arrangements. 

It is believed that over two million people who are locked in ‘rip-off’ pensions could be given a free exit after the City watchdog promised a fairer deal for savers.

The move comes after figures released by the FCA revealed annual fees on pensions, some as high as 7pc were destroying the value of pension pots.

But savers were unable to move their money to better deals - or withdraw and spend the cash - without paying expensive penalties.

A two-year study undertaken by the FCA revealed millions of people faced losing up to half of their life savings if they tried to exit before a specific 'retirement age'.

In some cases exit penalties were found to be cutting the value of a £100,000 pension pot to just £50,000.

According to the study, one in three people who were sold pension plans in the Seventies, Eighties and Nineties are now being hit with the fees as they try to access their money and pension providers have been accused of failing to spell out the costs.

The FCA has ordered all pension providers to 'cap or remove' these penalties and companies will be asked to prove that the charges are still fair. 

If they cannot, the companies will have to scrap the fees or reduce them to a level that the regulator thinks is reasonable. Pension companies will also have to make the charges clear to their customers.

Firms could face fines and savers could qualify for compensation.

Pensions expert and Partner at law firm Irwin Mitchell, Penny Cogher, said savers deserved fairer and better deals when it comes to exit fees.