An amnesty on pension charges is not the answer!

It seem that Aviva are to review the legacy charges on pension charges. Tom Mcphail is calling for a general amnesty on charges that hints that there is currently a “charges war”.

There isn’t a charges war Tom, if there was it would be a phoney war. For a war to be going on , there have to be people bothered to fight. Frankly the only people bothered appear to be the platform providers who could see big inflows if there was a way to unblock the legacy pipeline.

that’s not quite true – I’m bothered- wearing my “let’s get people back in love with pensions” hat and Steve Webb is clearly bothered- otherwise he wouldn’t be going on about small pots and Gregg McClymont is bothered , otherwsise he wouldn’t be winding up Ed Milliband to get all militant about this stuff.

However it is not good enough just to blame insurers and tell them to pick up the bill. That’s not how it works.

People entered into a contract with the insurer to get a service over time, typically a long-time. People have paid what they signed up for. The product may not have performed as they wanted it to but that’s another issue. People are paying a price for a product which is now generally cheaper. They have two choices;

  1. To stick with what they’ve got
  2. To cut and run, crystallising yet to be charged for charges as an exit penalty.

The exit penalty is there to recover costs that the insurer has already incurred (eg the payment of non-recoverable commission). We cannot force insurance companies into discounting costs just to keep the politicians , pension experts and consumerists onside.

If there had been an identifiable breach of contract that would b e different, but delivering below expectations or market norms or whatever is not “breach of contract”- it’s unlucky.

It’s a question of fairness we need to be fair to insurance companies – we also need to be fair to people about how these exit penalties are calculated.

If Aviva are looking to review their exit penalties – and it’s good that they do so – then they need to start talking to other insurers in the same boat. The way insurers do this is via their trade body, the ABI.

This is what has got to happen. All the pricing actuaries of the insurers selling these “legacy products” need to sit down in a darkened room and agree a common set of assumptions, these assumptions need to be realistic and be based on what has happened in the past and what is likely to happen in the future. This means actuaries!

When they have come up with their common assumptions on how to calculate exit penalties, they need to tootle along to GAD in Chancery Lane and get the Government Actuary to sign off their way of doing things.

The next thing that needs to happen is that the FSA, the Pension Regulator and all the pseudo regulators like the PMI, NAPF et al, come behind this methodology and consider DC pension transfers calculated this way “kitemarked”.

Kite-marked transfer values should be taken without demur, with no comeback on advisers that make this happen. Individuals chosing to transfer on an execution-only basis would be able to do so.  The onus would be on the company offering the transfer value to flag any special features (with-profits terminal bonuses, guaranteed annuity rates and loyalty bonuses being given up.

None of this is rocket science but it is an answer to Steve Webb‘s problems with small pots, it does mean advisers can get on with consolidating people’s pensions and those who reckon they can manage their finances themselves, can do so without an actuarial qualification.

So pack in all this talk about amnesties  Tom, let’s pursue fairness and a course of action that’s got a reasonable chance of delivering results in the next couple of years.

We can’t make these charges go away but we can at least make them fair, properly disclosed and capable of inciting action among a general public sick to death of not knowing what to do and how to do it.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to An amnesty on pension charges is not the answer!

  1. ginanmiller says:

    Well said Henry – it is right to say that if people enter a contract fairly then it is up to both sides to honour that contract.  Your last paragraph sums this up eloquently ‘We can’t make these charges go away but we can at least make them fair, properly disclosed’. We have been attacked for doing what is only right for clients and by so doing ‘showing up’ others in the savings industry.

     The central problem is that customers can never see one number that properly includes ALL the costs so they can invest with their eyes fully open rather than being forced down misleading silos by the pensions and investment industries.  But this debate has been ongoing for more than 10 years and nothing has fundamentally changed.  We have proposed a True and Fair Label and Code which produces ONE number for ALL the costs for any product be it unit trusts, pensions, portfolios or ETFs.  It’s called True and Fair because it’s based on accountancy principles. Most of the bigger companies have tried to ‘break’ it but none have been successful so we know it works.  

    Sadly even those claiming low and fair costs like Hargreaves have been its staunchest critics although recently some (not it’s pension expert yet) have privately supported it. We have found them to be as guilty as others in charging extra fees (eg platform fees for their index funds) which currently mean an investment of £1,000 in their cheapest UK index fund actually costs 2.5% pa rather than just the headline 0.1% pa charge.

    Of course if they wanted they could follow the True and Fair code, , and add all the costs together in one whether initial or ongoing, percentage or pounds, above or below the surface. They seemingly don’t want to do it as none of their competitors do. You would think at least one company could see the competitive advantage of being the standard bearers of true honesty and integrity; not just consumer friendly rhetoric but no.  Just because the UK regulator has allowed fund managers and other agents to do the bare minimum does not make it a valid excuse for the industry condoning a system that amounts to institutionalised fraud.

    Interestingly the current Chairman of the FSA, Lord Turner, who is attempting to get the Bank of England top job despite repeated recent financial failures, has warned about caveat emptor.  Caveat emptor can work – but it requires the FSA to force operators to properly disclose ALL the costs in ONE number.  Than consumers can make proper informed choices about important decisions that will ultimately affect their and their family’s futures.  The FSA is about to become the FCA; we implore its new head Martin Wheatley to ensure the change from ‘S’ for self-interest to ‘C’ for consumer protection happens so the industry can start to rebuild its reputation with the public . 


    • henry tapper says:


      I’m going to look into this campaign of yours. You’ve been around a long time and I’m shamed I don’t know more than I do of your activities.

      Thanks for your kind comments

  2. Aviva has to cover its losses somehow though, right? Early exit penalties at least reward loyalty to those who stay with the scheme.
    Now all they have to do is work out a viable new portfolio investment strategy

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