It would seem that, with the scrapping of pension exit fees, providers will always have other ways of applying fees that are to their advantage. One of those ways is servicing fees. Now, we fully agree with servicing fees – providing the service justifies the fee. However, in reality the so-called ‘service fee’ generally involves no advice, no active management from the provider and no advantage for the client.
One reported case disclosed how one man’s pension was reduced from £8,740 to £0 at 65 years of age, solely by service fees levied by Friends Life. This gentleman paid into his pension over the late 1990s and early 2000s but, being unable to continue contributing, ceased payments soon after. However, a clause in the small print of his agreement stated that he had to contribute at least £5,000 per year or face “additional charges”. A further clause stopped him from transferring to another provider, as doing so would reduce his entire pension fund to £0. The gentleman involved was never advised of these restrictive clauses and was victim to the doorstep selling that was rife in the 1990s, and which goes on to some extent even today.
Transferring to another provider offering the same level of management would have reduced his annual payments from £425 per year to just £10 per year, because this “service fee” was in fact for no service at all. Fees of this type are simply not justifiable, and would leave someone with no pension to draw upon in retirement.
After much negotiation, Friends Life did agree to rectify the situation and awarded the individual a revalued pension pot of £16,249 and a 2.49% exit fee if he wished to move to another provider (until April, obviously, when exit fees will be capped at 1%).
The lesson here is to always read the small print, keep track of your pensions and, above all, use a reliable and trustworthy adviser who would not let something like this happen to their clients.