This past summer saw a number of Government-initiated consultations, including one into early exit charges levied on (some) pension products. The Chancellor of the Exchequer has recently announced that the Financial Conduct Authority (“FCA”) is to be mandated to cap “excessive early exit charges”. These early exit charges might be levied on savers who seek to access their retirement savings prior to the agreed maturity date of the contract entered into with their provider. The Chancellor’s announcement raises a fundamental issue, before the consequences related to saving for retirement are even considered.
The Consultation stated that “the government is clear that any option which could cut across existing contractual property rights, such as a statutory cap on exit fees, would represent a significant step.….The government is also mindful of …. the potential legal impact on existing contracts of applying such a limit retrospectively”. The significant step of making a retrospective amendment to an existing contract seems to have been taken – or at least delegated to the FCA to take. Now that a precedent regarding the validity of an agreed contract is being established, where will this Government/Chancellor stop?
The consequences of such a precedent have much wider impact than simply the pensions industry. Will investors now think twice before committing significant capital to businesses or projects in the United Kingdom lest the rules be changed once their investment has been made? Are all contracts up for retrospective amendment or are some more protected than others?
The Chancellor stated, when announcing the cap, that “we’ve listened to the concerns and the newspaper campaigns that have been run”. The campaign against the freezing of the State pension for those living abroad affects more people than this successful drive to cap early exit charges but appears to have fallen on deaf ears to date. Similarly, the calls for a cap on early exit charges have been much smaller than similar campaigns for the abolition of the Lifetime Allowance (“LA”). Will the 16 March Budget show that the Chancellor has listened to the LA-related concerns?
The last Leap Year featured the ‘omnishambles Budget’. Will the current Leap Year see the emerging omnishambles in UK pensions (and contract law) grow further or will a clear and coherent long-term plan become evident? Perhaps the plan is already obvious but I am missing it by focusing on the long-term that it will take most savers to come anywhere close to achieving the standard of living they aspire to in retirement. A robust and consistent contractual system will likely support investment and growth in the UK over the long-term too, with a consequent impact on the country’s fiscal position. Why is there an apparent prioritisation of short-term measures to raise once-off tax revenues?