The client, known as Dr D, complained to the regulator that she should not be charged a fee having been told the pension was “fully portable”.
In 1995, Dr D took out the policy with Sun Life, which merged with Friends Life in 2010, with an expected retirement date of 2026. A year later, the client said she was considering changing her pension plan.
After approaching Sun Life about potentially moving the plan to another employer, the insurer wrote to Dr D’s IFA saying that “all pension contracts offered by Sun Life are fully portable”.
The adviser passed on the letter to Dr D, stipulating that it “explains that in making this change to your plan there is no cost to you”.
As a result, Dr D stopped paying premiums into her Sun Life policy in 1997 when she joined a company pension scheme.
When the client came to transfer her pension to another scheme, she was whacked with a hefty exit fee.
However, the POS ruled in favour of Friends Life, citing the original letter sent to Dr D’s adviser only referred to the fees of using the same scheme with multiple employers not transferring from one scheme to another.
“What Dr D is now considering, i.e. carrying out an internal transfer some 16 years later to a policy without a similar charging structure, is not covered by the 1996 letter,” the POS decision said.
Pension changes in 2001
The ombudsman acknowledged that prior to pension legislation changes in 2001, the client could have transferred the plan to another policy for free.
“Dr D points out that the law changed in 2001, arguing that this was because exit charges were considered unfair. However, I must apply the law as it stood at the date the contract was formed,” said the POS.
Meanwhile, the regulator agrees that Dr D’s adviser should have clearly explained the exit charges -made up of capital units surrendered prior to the normal retirement date.
FCA exit fee cap
The ruling comes as last week, amid mounting criticism of the charges, the Financial Conduct Authority (FCA) announced a cap of exit fees for existing contract-based personal pensions, including workplace personal pensions, at 1% of the value of a member’s pot.
The cap, proposed as part of the government’s ongoing plan to improve access to pension savings, will benefit more than 747,000 people in the UK, the FCA estimates.
It will most directly impact consumers with pensions who would incur an early exit charge for accessing their savings; as well as providers of personal and stakeholder pensions, including operators of self-invested personal pensions (Sipp).