Millions of savers could be freed from hefty fees when they move their life insurance policies or pension pots under reforms by the financial regulator.
They could also receive thousands of pounds in compensation if fees they have already paid are judged to be unfair. They can either complain to their company or await the outcome of the regulator’s review, which could enforce redress.
The changes will affect mostly people whose pension savings, life insurance policies or endowment bonds were bought before 2000 and are in a fund that is closed to new business.
This group has been more badly served by insurance companies compared with those with newer policies, according to the Financial Conduct Authority (FCA). The majority of policies have no or low exit fees, the FCA said, but a lot of people pay fees of 5 to 15 per cent of the value of policies to move them and do not understand the costs involved. Some fees are higher. Exit fees are not against the FCA’s rules but companies must be able to demonstrate that they are treating customers fairly. The regulator is considering banning or capping the fees.
It investigated a sample of 11 companies with 9.4 million customers whose policies are worth £153 billion. The average value of the policies was £18,000 for an endowment and £23,000 for a pension. Compensation payments could be about £2,000 per person.
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In many cases communication with customers was inadequate, with companies focusing on new customers and not paying sufficient attention to people with older investments. Some companies fell short of keeping in touch with people if they moved or their circumstances changed.
The review affects policy exit charges and “paid-up fees” which some companies impose on customers when they stop making contributions but keep their money with them. Millions of people could be affected.
Tracey McDermott, acting chief executive of the FCA, said: “The practices at some firms appear to have been poor. We are now doing further work to understand the reasons for these practices, whether customers may have suffered detriment as a result and, if so, how widespread these issues are.”
The FCA’s enforcement department will investigate six providers: Prudential, Scottish Widows , Abbey Life, Countrywide, Old Mutual and Police Mutual. Abbey Life and Old Mutual face a broader investigation than the others but all will have their practices examined as far back as 2008.
Investigations can result in fines for companies and fines and bans for individuals if wrongdoing is found.
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Hugh Savill, director of regulation at the Association of British Insurers, said: “It should be noted that products sold today bear little resemblance to those described by the report.
“The long-term savings industry is now modernising and focused on serving its customers, through auto-enrolment pension products or helping them make the most of the new pension freedoms.”