Early withdrawal fees

Early withdrawal fees

Remarkable Telegraph article on a category of 'fee' charged by presumably more than one wealth manager:

"St James’s Place, the FTSE 100 wealth manager, has long charged its customers an “early withdrawal charge” of 6pc, decreasing over six years. The exit fee, which applies to all pensions and investment bonds, starts afresh on any new investments subsequently made by the customer.

Ros Altmann, the former pensions minister, said the Financial Conduct Authority must force firms to explain to customers what damage “unacceptable” high exit fees could do to their savings.

Baroness Altmann said: “Not everyone has understood what the charges are. That is clearly unacceptable. Customers need to be clearly told upfront, and confirm they understand that if they leave they will face a penalty.

“I think that should be squarely in the FCA’s remit. Unfortunately the industry is very good at hiding fees.”

Steve Webb, who is also a former pensions minister and now director at Royal London, the pension company, added: “The big principle has got to be transparency. People often don’t fully understand that if they want to access their cash there is a substantial cost to do so.

“People are bombarded with information. This stuff can’t be in the small print, it’s absolutely fundamental.”

And this is SJP's rationale for these charges:

 “We have a variety of charging structures across our range of investments, some of which do include an early withdrawal charge, reducing over the first six years, and others have an initial charge.

"Both allow us to cover the cost of providing advice, as well as the underlying investment solutions. These will have a similar effect if the client chooses to remain invested for only a few years.

“When investing it’s important to remember this is a medium to long-term commitment. The average investment with us remains invested for 14 years.

“However, to allow some flexibility, our products do allow a proportion of the investment to be withdrawn without the early withdrawal charge applying.

"All charges are explained to clients by their adviser prior to investing, and are set out clearly in a written personalised illustration. We believe in clarity for every client so they can make a fully informed decision.”


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Residence Nil Rate Band - Q&A

Q: What is the new Residence Nil Rate Band?

A: Everyone can leave up to £325,000 of their total estate free of inheritance tax, provided this allowance hasn’t been used when making gifts, or settling assets into trust. Your estate is the total of your savings, investments, the value of the house you live in and your other assets. But starting in this tax year (2017-2018) there’s an additional inheritance tax allowance – the residence nil-rate band (RNRB) – which can be claimed by the estates of people who die after 6 April 2017.

Q: Is there a limit on the size of the estate on which the RNRB can be claimed?

A: if your total estate is worth more than £2 million, then for every £2 you are over that figure you lose £1 of the residence nil rate band allowance.

Q: When does the RNRB come into force?

A:  From 6 April 2017, it can be claimed on top of the existing nil-rate band of £325,000. It starts at £100,000 per person and will increase annually by £25,000 every April until 2020, when the £175,000 maximum is reached. Adding this to the couple’s nil-rate band equals £1 million per couple. From April 2021, it will increase in line with inflation every year.

Q: Are there provisions for those who have already sold their home?

An estate may still be able to claim the residence nil-rate allowance even if they’ve already sold their home - for example, because they are in residential care or living with their children. If their home was sold after 8 July 2015, and they plan on leaving the proceeds to their direct descendants, then there are provisions in place that will allow their estate to claim the new allowance.

Q: What are the other restrictions on the RNRB?

A: It will apply where the person who has died owned a property that was at one time their home. It will also only apply if the property is being left to the deceased’s direct descendants (children or grandchildren).