illions of pounds held in pensions have been trapped as a quarter of fund shops have refused to drop controversial exit penalties for savers.
Experts have widely condemned the practice of charging fees that punish savers who want to move their money elsewhere. However, Barclays Smart Investor, IWeb, Halifax Share Dealing and Charles Stanley, as well as St James’s Place, the wealth manager, all apply charges to departing customers.
The Financial Conduct Authority, the City watchdog, has abandoned plans to ban exit penalties despite its repeated warnings to the industry about the practice. It has claimed that the fees stifle competition and prevent customers from switching to cheaper providers.
The FCA last month opened a consultation on “consumer harm”. However, it scrapped plans to abolish exit charges in November 2020, citing the pandemic as the cause for delays, despite warning that they could leave customers trapped in unsuitable deals. An FCA spokesman said: “We saw a marked shift away from exit fees, which contributed to our decision to stop our work on a consultation on them. We monitor firms’ activity and will take action if we see harm.”
But Tom McPhail of The Lang Cat, a consultancy, said: “The FCA argued that the market had shifted but it’s still scrappy out there, so they certainly can’t claim to have fixed the problem.”
In the meantime, savers have been held hostage or paid thousands of pounds to get their hands on their own money. SJP has tiered exit penalties under which customers can face a 6pc fee for transferring their assets. Kevin Clancey, 64, from London, said SJP handed his wife, Jacqueline, a £10,284 bill for transferring her pension to Hargreaves Lansdown, a rival firm.
Mr Clancey said he refused to leave the money with the wealth manager because he was disappointed with the returns. “It’s a horrendous amount of money but it was important to get it transferred,” he said.
The charges for moving investment pots can be substantial. A 50-year-old who moved a £300,000 pension and incurred a 6pc penalty would be £26,000 out of pocket by age 65, assuming 5pc annual returns, as their pot would have been reduced by losing money to fees. That is according to calculations from Penfold, a pension provider.
Four of the 16 largest Sipp brokers still charge exit penalties, according to research for Telegraph Money by Compare The Platform, a research company. They include Barclays Smart Investor, which charges £75 on Sipps transferred to a UK pension scheme. Closing an account by withdrawing the full amount within the first year incurs a £250 charge.