High SIPP exit fees ‘breach TCF’

SIPP exit fees have become so high they are breaking TCF obligations, according to Dentons Pensions Management.

Dentons business development manager Martin Tilley says the FSA should take urgent action to prevent providers levying disproportionate fees for unhappy customers to leave.

Some providers are charging exit costs equivalent to three years of annual management fees, presenting an unreasonable post-sale barrier, he says.

Tilley says the FSA should undertake an urgent review of SIPP exit fees and claims they have become increasingly high as interest rates have dropped.

“Firms that were taking a significant cut on cash account interest rates have found their incomes squeezed since interest rates fell to 0.5%,” he says.

“They have increased their fees to make up the shortfall and imposed these huge exit fees to prevent clients from going elsewhere.”

Tilley says such moves are in clear breach of TCF principle outcome six, which reads: “Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.”

In one case Tilley dealt with recently, a 10-member group SIPP was facing exit fees of £650 per member, amounting to a total of £7,150, or almost three years worth of fees. Tilley believes the actual administrative cost should be about £2,500.

However, Billy Mackay, marketing director at AJ Bell, says the FSA should not interfere with the market and its pricing policies.

“Price is the biggest single driver in the SIPP market, and it is up to clients and their advisers to consider all the costs of their SIPP when they choose one,” he says.

Mackay says provided all costs are fully disclosed to the consumer at the point of sale, the FSA should not dictate pricing as it would interfere with competition in the market.

The regulator says it is the role of advisers to consider the cost of exit fees and discuss them with their client when making a SIPP recommendation.

However, a spokesman says the FSA will continue to examine the SIPP industry and may intervene in the market where it sees consumer detriment.