Almost half of all financial advisers have clients prevented from accessing the new pension freedoms due to early encashment penalties, according penalties, according to an AJ Bell survey (Pension Freedoms).
At its Investival conference in November , the firm surveyed 114 advisers, finding that 45 per cent of respondents have clients who have been subject to pension exit penalties.
For about half (24 per cent) of these advisers, around 5 per cent of their clients have been affected by penalties. Additionally, 14 per cent of advisers said either 10 or 15 per cent of their have been prevented from accessing the pension freedoms because of exit penalties and 7 per cent said at least 20 per cent of their clients were in this position.
Billy Mackay, marketing director at A J Bell, said early encashment penalties getting in the way of advised clients making the most of pension freedoms “feels wrong” as it fundamentally goes against the spirit of flexibility and choice.
He said “the problem with some early encashment charges on older pension contracts is that there is no obvious link between the charge and the work required by the provider to make the transfer”.
“The main reason given for exit fees is to cover initial costs, but you have to question whether it is reasonable to still be collecting charges for events that may have happened around a quarter of a century ago”.
He also questioned whether some exit fees really do relate exclusively to initial set up costs, or whether they are actually about on-going provider profitability.
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About Us: Churchill Wealth Management is a team of independent financial advisors/financial advisers (IFAs) based in Clifton, Bristol. We provide independent financial advice, including pension advice, investment advice, inheritance tax planning and protection/insurance advice.