Pension firm charged me huge penalty for moving tiny pot from DECADES ago – the fee trap on old schemes to be aware of
A 54-YEAR-OLD saver faced paying a huge penalty charge for moving a tiny pension pot she hadn’t touched in decades – until The Sun stepped in.
Sarah Ross* contributed to a workplace pension when she worked as an admin assistant at David Lloyd Clubs between 1996 and 2000.
But fast-forward 23 years and Sarah had practically forgotten she even had the pension.
With retirement on the horizon, she decided last year that it would be a good idea to combine her various pension pots from different jobs into one place to help keep track of them.
Moving all her pension pots to her current provider, Aviva, would also reduce the charges she paid as she would pay one low fee rather than various fees for each different pot.
Charges on old pensions can often be much higher than in modern schemes as the products are from before the current 0.75% charge cap was introduced.
Sarah, from Macclesfield, first looked into withdrawing her funds from her old David Lloyd Clubs pension, which was run by financial firm St James’s Place (SJP), in November last year.
But to her horror, she discovered that by moving the cash from her pot – worth roughly £26,000 – she would incur a whopping 4.33% early withdrawal fee.
If the 4.33% fee was on her entire pot size, this would have amounted to a £1,100 charge just to take the cash out and move it elsewhere.
But even more frustratingly, SJP couldn’t seem to explain what this fee was for or what part of her pension it actually applied to.
In fact, its own advisers seemed to think the charge was an error, further confusing Sarah.
In January, SJP contacted Sarah to say: “The Early Withdrawal charge six-year period is applied to each regular contribution separately, meaning that once each payment has been invested for more than six years, that contribution and any growth it gains will become free of early withdrawal charges.”
Yet, Sarah hasn’t contributed to her plan with the firm in over 24 years and still seemed to be facing the penalty.
When she raised this with two other customer services agents, she was still told there was “no set answer” as to why she was still facing the charge.
She has now been waiting over 16 weeks since she first formally complained about the unexpected fee.
Sarah said: “I have done nothing with the pension since and before Christmas 2023 I decided I wanted to transfer the pot into another pension I have with Aviva with lower fees, however, SJP is telling me that I have three tranches and that one of them has a huge 4.33% withdrawal charge.
“I just find it incredibly frustrating and unfair. I feel they are really holding me over a barrel and I don’t know why it’s taking so long to get an answer.
“One of the financial advisers I spoke to there said he couldn’t understand why it did as there shouldn’t be after six years, so referred the matter to a ‘specialist team’.
“But it’s been about 16 weeks now and I’m still waiting for a resolution.”
SUN INTERVENES
SJP has repeatedly extended the deadline to respond to Sarah’s complaint.
On April 25, the firm wrote to Sarah again apologising for the time it had taken to respond to her complaint and thanking her for her patience.
That’s when Sarah asked the Sun to step in on her behalf.
Some providers charge an exit fee when you withdraw or transfer money out of your pension.
These are more typical on older pensions set up before March 2017, when the City watchdog, the FCA, capped exit fees at 1% for savers over 55 and banned fees in any new plans.
But Sarah isn’t quite 55 and her pension is far older than this, so her scheme isn’t covered by the charge cap.
When we spoke with SJP, it explained her pension is in a very old product and therefore the charging structure is very different to what you might find on a modern pension.
After we asked the firm to investigate the charge, it turned out the hefty fee should only be linked to contributions Sarah made when first setting her pension up.
Her particular pension product estimated how much Sarah would contribute over time, and by leaving the scheme early, she had a “charge overhang” of 4.33% – in her case, equivalent to £150.
SJP has now agreed to waive this charge and has apologised for the long delay in resolving Sarah’s complaint.
A spokesperson for SJP said: “This is an older pension contract that has a charging structure based on the contributions that were expected to be paid into it.
“This was fairly common across the industry at the time this plan was set up.
“We have contacted Ms Ross to apologise for the delay in resolving her complaint and, as a gesture of goodwill, have confirmed that we will waive the remaining charge should she choose to transfer the plan.”
*first name changed on request
What other pension fees could I be charged?
Exit fees are not the only high charges that can be applied to old pensions.
When you join a new company, you are usually “automatically enrolled” into its workplace pension scheme.
You then contribute a percentage of your salary towards your pension each month – the minimum is 5% – while your employer contributes a minimum of 3% unless you opt-out.
The scheme also levies a charge from your total savings every year to help cover its running costs.
This does exactly what it says on the tin – it’s how you pay your provider for running your pension scheme and investing the cash on your behalf, with the aim of the pot growing over time.
The majority of firms charge between 0.25% and 1% for the same service, according to provider PensionBee – although 1% is a comparatively high charge.
But older schemes can be charged far higher than this, and if you end up with several pension schemes, these fees can eat away at your savings.
In Sarah’s case, her SJP pension had been separated into three different “tranches”, so she was paying three different annual management charges too.
Sarah is being charged 0.25%, 0.75% and 1.5% on her pots, which is why she’d like to consolidate them all together into a lower-charging scheme.
Consolidating your pension pots is almost always a good idea.
That way you’re not stuck paying high fees on old pots that are eating away at your retirement savings.
How do I consolidate my pension?
IF you have several workplace pensions that you're no longer paying into, you might be better off consolidating them into a single pot.
There are several advantages to this.
The first is that by having your savings all in one place, you’ll only pay one set of fees.
You can also choose which pension provider you want to transfer the different savings into, so you can pick the best one for you.
It also makes it easier to keep track of your money.
You might want to move all your money to whichever of your existing pots has the best fees, or you could move it all to your current employer pension (if you have one).
Alternatively you may wish to move money to a private pension or use a consolidator service, such as Pension Bee, Aviva, or Wealthify.
Make sure you compare and contrast your options carefully, so that you’re picking the best home for your savings.
You’ll need to look at fees and charges, but also might want to consider the investment options available.
If any of your pots are over £30,000 you’ll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to an independent financial advisor (IFA).
You can use Unbiased or VouchedFor to find a recommended advisor near you.
Also ask whether you’ll be charged a fee to exit your existing provider and to join your new provider, plus whether the age at which you can access your pension is different – for most people this is currently 55, but is set to rise to 57.
You also need to ensure the pension you’re leaving doesn’t come with valuable added perks, or you could lose out.
Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.
What to look out for before consolidating pensions
While the savings you can get from consolidating your pensions might be attractive, you should double check you understand the new schemes’ fees.
Make sure you have done all of the calculations and taken into account any applicable fees to get a clear picture of what you are paying now compared to what you will be if you switch to a new scheme.
Rebecca O’Connor, director of public affairs at PensionBee, previously told The Sun: “Bear in mind that some pension providers charge percentage fees and some charge flat rate fees.
“You might need to convert a percentage fee into pounds and pence based on your total pot size, or vice versa do a proper comparison.”
Before consolidating, you should also think about what you want your pension to do as well as the value of the money on offer.
It might not be beneficial to switch to a lower-fee plan if the plan goes on to deliver lower investment returns, for example.
Pension schemes invest your cash with the aim of growing it over time, and some schemes may have investments that are performing better than others.
Ms O’Connor said it’s worth considering performance and working out whether you are likely to get a better deal overall with a new pension.
Ask the scheme for information about their investments’ performance if you’re not sure.
Some pensions may also come with benefits such as offering you an earlier age that you can start taking out withdrawals, or guaranteed annuity rates.
If you transfer out of these, you may lose these benefits and therefore will need to weigh up if that works for you or not.
Your pension scheme can tell you if you would lose any benefits by leaving the scheme.
What is pensions auto-enrolment?
HERE's what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work’s pension scheme if you meet the following criteria:
- You aren’t already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £6,240 up to a limit of £50,270 in the current tax year. This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
When can you access your pensions?
The earliest you can withdraw from a private and workplace pension without penalty is currently age 55.
However, this doesn’t necessarily mean that you should, especially duringperiods of high inflation.
From 2028, the age you can start withdrawing cash will rise to 57.
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