Exit Penalty Compensation Claims

Exit Penalty Compensation Claims.

Here we go again!

Claims management companies will be rubbing their hands with glee after the finance industry regulator, the Financial Conduct Authority (FCA), confirmed that it is investigating initially six insurance/pension companies for failing to make their clients fully aware of exit penalties when cashing in their policies early or taking early retirement.

The companies being investigated are Abbey Life, Countrywide, Old Mutual, Police Mutual, Prudential and Scottish Widows. If it is found that exit penalties were not fully disclosed then it is likely that the regulator will fine the above companies in addition to ordering compensation with additional lost interest payments.

Comment

The regulator requires all financial services companies to be clear, fair and not misleading. Sadly, this is about small print disclosure and trying to force companies to cap their exit charges rather than being fair to those policyholders that actually remain invested.

Many older style policies were sold on a commission basis i.e. clients did not pay a fee for the advice that they receive but additional/higher charges were built into the policies to cover the commissions. These commission costs are usually spread over the life of the policy meaning that if you encash a policy early all of the charges for commissions paid may not have been taken hence the exit penalty.

In our view, most of the early exit penalties are fair but it is just a question of the insurance or pension company having made it totally clear that there are penalties and perhaps they should also make it clear why there are penalties.