I’ve always liked those moments when big, abstract concepts become real and commercial. A-Day was like that – it was fun debating what was going to happen, but much more fun when you started to see how providers, advisers and clients were going to relate to it in real life.
An important step towards this stage (or stage towards this step if you prefer, doesn’t matter) happened today for the NEW GOLDEN DAWN OF PENSION FREEDOMS with big Bristol beasts Hargreaves Lansdown announcing a Â£295 plus VAT (Â£354) charge for stripping your fund completely in drawdown.
Let me qualify. Clients who transfer into a HL drawdown plan and strip the fund within a year will be expected to stump up. Those who are Vantage SIPP clients already and move into drawdown won’t (says our man in the thick of it in BS1). Provisions are in place (use your best ominous voice for this) for those who either try to leave a peppercorn amount in their plan to avoid the charge, or who transfer to a Vantage SIPP, flip to drawdown quickly thereafter, and then get their money out.
HL has also removed its ‘standard’ drawdown charges, meaning you no longer get charged Â£354 on the way in, Â£12 to change your income, or Â£30 for ad-hoc withdrawals (all including VAT).
Now, we don’t like exit penalties here at the lang cat, and we’ve poked HL with a stick numerous times in print on that basis. But this feels OK to me, and here’s why.
First, it’s not an exit penalty (despite Money Marketing’s headline to the contrary). It’s an admin charge. This looks remarkably like the immediate vesting pension (IVP) market of the 90s and early 2000’s, where a time and effort charge was applied to those who wanted to bounce their pension in and out of a provider.
(One of the potential outcomes of the new freedoms is a re-emergence of the IV market as people try to turbocharge their access by side-stepping cumbersome lifeco systems, especially in the non-advised space. We view that as a potential area of concern; something we’ll be writing more about soon.)
Secondly, HL is playing it with a pretty straight bat in that this is only aimed at those using them for ‘clearing’ and not for genuine longer term customers. Whether their provisions to combat those who try to game the system are good enough, only time will tell. So that feels OK – and the removal of their other drawdown charges is very welcome.
If you’re Hargreaves, you’re the most visible and accessible direct pension and investment provider in the UK. That means people will try and use you for all sorts of pension matters, and not give much thought to whether it’s economic for you.
In one sense – who cares? In another, HL has every right to levy a charge.
Is Â£295 plus VAT the right amount? I don’t know. But I do know that HL has now established a price anchor in the direct market, and others with similar capabilities will most likely now feel more able to declare their hand.
We remain of the opinion that HL charges very fully for what it does, and that its Â£25 a line exit fees need dragged out behind the woodshed and killed with an axe. A charge for immediate vesting is not the devil’s work.
It’s all getting real, sports fans. We’ll keep you up to date with what happens next…