Pension transfers and early exit charges consultation

27 August 2015
We summarise the issues raised in this consultation on possible barriers to people switching their pensions to access the new pension freedoms.
Full consultation

Download a full copy of the Pension transfers and early exit charges.

The Government wants to ensure that people can access the new pension flexibilities easily and at reasonable cost.

The consultation seeks responses on options to address possible barriers to people switching their pensions to access the new freedoms.

These include excessive early exit penalties, the process of transferring pensions from one scheme to another, and the circumstances in which someone should seek financial advice.

Let's take a look at each one in turn:

The Government is aware that the majority of individuals accessing their benefits are able to do so without disproportionate or excessive exit charges being applied.  However, the Government wants to understand whether some individuals may still be unable to access the freedoms without being subject to such charges.

There is limited research across the market on the prevalence of exit charges which in many cases relate to policies dating back 20 years or more.  Although many of these policyholders will face exit charges that represent fair and reasonable charges to cover costs, the Government is keen to understand the circumstances where:

  • Exit charges could be considered excessive or disproportionate relative to the underlying cost of making the transfer or allowing the individual to access their benefits early,
  • Individuals may have lost out as a result of not being able to access the flexibilities as a result of high exit charges, and
  • Individuals may have been exposed to other “exit” charges on accessing their pensions.

If there is clear evidence of excessive early exit charges being applied, the Government has identified three possible options to address the issue of early exit charges:

1. A cap on all early exit fees

The Government could enact legislation aimed at capping all exit charges (excluding MVAs and other investment deductions) for those aged 55 and over transferring before their scheme retirement date.

2. A flexible cap in certain circumstances

As an alternative, the Government could take a more flexible approach to capping early exit charges. 

For example, the cap could be limited to pots above a certain size or it could be tailored to apply to particular components of an exit charge.

3. A voluntary approach to restricting early exit fees and charges

The industry would take the leading role in addressing any concerns about exit charges.   

For example, trustees or managers could waive or reduce early exit charges where members move from an existing arrangement to another one offering flexibility.

The Government want to ensure a smooth and efficient transfer process, both for individuals with flexible benefits and those with safeguarded benefits.

Pension transfers are complex as scheme trustees and managers must follow a detailed legislative process when converting benefit types into a different form.  This means the transfer process often takes months rather than weeks.

The Government has developed a number of universal principles1 which should apply when switching from one product to another.  These are:

  • The process takes as short a time as possible,
  • The gaining provider should lead the process,
  • The process should be efficient with effective redress mechanisms if things go wrong, and
  • The process should be free to the customer unless contractually bound.

The Government is keen to understand:

  • The scope for a timely and efficient standard process for transfers that works for the majority of pension savers and how such a process could be developed, and
  • Whether and how the universal principles could apply to pension transfers, noting that pension transfers are an irreversible transaction and often a one-off event.


1. Fixing the foundations: creating a more prosperous nation, HM Treasury, 2015

The industry and individuals have raised issues with the Government regarding insufficient clarity about when individuals should be required to take financial advice before effecting a transfer, particularly with respect to pension benefits which contain a guaranteed annuity rate (GAR).

Individuals with safeguarded benefits which have a cash equivalent value of more than £30,000 must take financial advice before being allowed to transfer or convert these benefits into flexible benefits. This applies to policies with GARs as they offer a level of security similar to defined benefit schemes.

An individual may take financial advice in relation to safeguarded benefits and the recommendation is they should not transfer.  If the individual wishes to proceed with the transfer, they are referred to as an 'insistent client'.  The FCA recently published a factsheet2 which outlines the steps the financial adviser should take when advising insistent clients.    

The Government is keen to understand:

  • What has been the impact of the legal requirement to receive financial advice on the process for transferring safeguarded benefits, and
  • How the process for seeking advice in relation to safeguarded benefits could be improved. 


2. Factsheet No.035, Pension reforms and insistent clients, Financial Conduct Authority 2015

Good to know

The FCA and TPR are carrying out a comprehensive data gathering exercise alongside this consultation. It includes details on existing processes for pension transfers and any exit charges that members may incur for leaving their scheme early.

Take part in the consultation

The consultation closes on 21 October 2015 and the Government intends to publish its response in the autumn. Download the Pension transfers and early exit charges: consultation.

About the author

Robin Nimmo

Strategic Insight Manager

Robin has worked for Royal London for over 25 years with experience in marketing, research and product development.  He currently specialises in the at retirement market.

Last updated: 20 Nov 2015

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London EC3V 0RL.