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Phoenix takes £68m hit on charges and exit fee overhaul

Changes are not a result of recent criticism, Phoenix Life chief executive tells International Adviser



Consolidator Phoenix Life is removing exit charges on non-workplace pensions with a value of less than £5,000 and capping ongoing fees, incurring a one-off charge of £68m ($87.8m, €75.7m).

Speaking to International Adviser, chief executive Andy Moss explained the changes and why recent criticism of Phoenix Life’s exit fees was not the catalyst for the move.

“As part of our ongoing product governance process we look at different cohorts of customers with a view to seeing what we can do to add policyholder value,” he said.

The result, as announced in the firm’s financial results on 23 August, has been a cap on ongoing charges of non-workplace pensions to take effect from next year.

The ongoing charge for pension pots with a value of more than £5,000 will be capped at 1.5% per annum, with pots under £5,000 being capped at 3% per annum.

Moss explained that the higher cap for the smallest pots reflected the cost to administer those types of policies.

In addition, exit charges on pots below £5,000 will be removed.

“All of that has cost us £68m as a one-off charge and has been recognised in our half-year results. These changes will benefit about 250,000 policies,” Moss said.

This means that a quarter of the roughly one million policies Phoenix Life administers will be affected.

Moss explained that the firm’s other policies already have ongoing charges of below 1.5%, incurring an average 1.1% per annum.

Exit fee criticism

Phoenix Life has faces criticism recently for what were described as exit charges applied to policyholders in its with-profits funds, which Moss said had no bearing on the firm’s recent announcement.

At the time, a spokesperson for Phoenix told IA that the criticism was about market value reductions (MVR) on with-profits funds, which are not exit fees.

“That really is a fairness issue between policyholders,” Moss said. “It ensures that customers who leave early do not go with more than their share of the fund – that’s why MVRs are in place.”

Open and heritage books

Phoenix Group’s annual results state that it “will no longer describe itself as purely a ‘closed’ business, but as a consolidator of both open and heritage life businesses with a new business capability”.

The new capability being the acquisition of Standard Life.

Moss said: “We’d probably argue to an extent that we’ve always been open, as our heritage business is still very active and we continue to service customers and accept new increments from individual customers.

“What we have not hitherto done is taken on new customers to the group, so with the acquisition of Standard Life and our arrangement with Standard Life Aberdeen, we will be underwriting, administering and managing the capital for products which are sold by Standard Life Aberdeen.”

Following the acquisition, which is due to close of 31 August 2018, Phoenix will have about £160bn in its heritage business and £80bn in its open business.

“We will still predominately be a heritage business, albeit we will have an open element to us which gives us even more business going forward,” Moss said.

“Our intention very much is we are still an acquisitive company and we see opportunities in the marketplace to acquire more books of business. I think we will look at both heritage and open as part of that.”


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