Half a million exposed to exit fees over £1,000

Nearly half a million pension customers have policies subject to exit fees of over £1,000, FCA data reveals.

The regulator’s survey of 23 firms found 463,000 people with unitised pension policies – excluding conventional with-profits policies – of all ages would be hit with a fee of £1,000 or more if they left policies early.

However, there would be no exit fee at all for 83.6 per cent of customers aged 55 or over and 89.6 per cent for people younger than 55. This is equivalent to 17 million people.

In addition, 990,000 would pay £250 or less, while at the opposite end of the scale 39,000 people would pay £5,000 or more if exiting a policy early.

The most common reason firms gave for levying exit fees was to recoup outstanding initial expenses and/or initial commission already paid out.

Other reasons given included recouping charges that would have been deducted over the full life of the policy and ensuring exiting individuals were put in the same position as someone who had chosen a shorter duration of the policy at outset.

The largest 15 providers also provided details of the administration cost they would bear as a result of an early exit.

The vast majority of firms said the cost incurred by paying cash to customers or facilitating a transfer to another provider was £50 or less.