At the same time, Old Mutual Wealth will remove a policy fee that applies to certain legacy pension contracts when regular contributions are cancelled or reduced ahead of the selected retirement age.
The changes Old Mutual Wealth is making are in keeping with the work of its Independent Governance Committee (IGC) on workplace pensions which will publish its first report by 6 April. Old Mutual Wealth is extending the changes to benefit retail customers.
Exit charge cap
Old Mutual Wealth has been reviewing customer behaviour since pension freedom legislation came into force in April 2015, with some customers wanting to access their pension savings before they reach their originally selected retirement age.
From 1 July 2016, exit charges for UK pension customers will be reduced and for those eligible to flexibly access their pension these charges will be capped at 5%. Following these changes the average exit charge across all applicable pensions will reduce by around 2%. There are currently around 3,700 customers aged 55 or over in older-style pension contracts that attract exit fees.
Any such contracts were taken out at least 17 years ago when the costs incurred upfront to establish the plan were spread across the term that was selected when it was originally set up.
Over 85% of Old Mutual Wealth’s Heritage pension customers are not subject to any exit charges. In addition, exit charges have never applied to any pension bought from 2000 onwards.
Removal of paid-up charge
The pension and savings market has changed significantly in recent years, giving consumers a greater choice of suitable retirement products, alongside the progression of auto-enrolment. Old Mutual Wealth is therefore ensuring all regular savers have the freedom to stop or redirect their regular contributions without incurring a fee for doing so.
The removal of this fee will benefit around 9,400 existing policyholders who will see total ongoing charges reduce by around 22% on average, effective from 1 April 2016.
Steven Levin, CEO of Old Mutual Wealth’s investment platform, said:
“As a modern wealth management business, we are focused on ensuring customers receive good outcomes. The pension market has changed considerably and we want to ensure we are making improvements for those customers in contracts that were set long before the current rules were introduced.
“Where exit fees are still in place, due to the structure of older contracts, we want to do what we can to ensure customers receive good value for money. We are introducing the cap for all affected pension customers – whether they are individual pension customers or members of occupational pension schemes.
“We are very grateful to the IGC for its thorough work and pleased that they found the majority of customers in our workplace pension schemes get value for money.”
Richard Butcher, PTL, Chair of the Old Mutual Wealth IGC, said:
“Old Mutual Wealth has been transparent and supportive of the work done by the IGC. I am delighted that they have decided to take a proactive and positive approach to the Committee’s findings to enhance the value-for-money they provide to their occupational pension customers.”