Early Exit Charges on Regular Savings Plans Explained

If you stop paying into a regular savings plan, you may get back far less than you paid in. The reason is early exit charges, and they are built into how these plans work. This guide explains why they exist, how to read the figures and what your options are.

This guide is general information, not personal advice. Plan terms differ, so check your own documents.

The short answer

Most regular savings plans are priced on the assumption that you will keep paying for 10 to 25 years. The provider takes much of its charges early, so if you stop, the value of your plan can be far below your total payments. The amount you get if you cash in is called the surrender value, and your documents should show it year by year.

Why early exit charges exist

When you take out a plan, the provider and the adviser have costs at the start. These can include commission, set-up and administration. Many plans recover those costs from your payments over a set period, often the first few years, rather than from the start date only. If you leave early, the provider has not yet recovered the costs, so it keeps more of your money.

Two things follow from this:

• the plan may look better on a sales illustration, which assumes you stay, than in real life
• the charge is not a penalty added on top, but part of the plan’s structure

That is why reading the surrender table before you sign matters. Our guide on five questions to ask before you sign a regular savings plan covers what to ask.

How the charges work in practice

Plans use different methods, and the labels vary. Common features include:

• Initial units or capital units. For a period, part of your payments buys units that carry much higher annual charges, or that are not fully available to you if you leave early.
• Establishment charges. A set-up charge that is spread over several years and recovered from your payments.
• Surrender or early cash-in charges. A deduction when you cash in during a set period.
• Loyalty bonuses or commitment rewards. Extra units that you receive only if you stay to a given date.
• Ongoing charges. Annual management charges and fund charges that continue whether or not you keep paying.

Two plans with the same headline charge can give very different surrender values. The detail in the key features document is what counts.

How to read a surrender table

Your plan documents, or the provider on request, should give a table of surrender values by year. When you read it, look at these points:

1. Total paid in against surrender value. Compare the two for each year. The gap shows how much you would lose by leaving.
2. When the gap closes. Find the year when the surrender value catches up with, or passes, what you have paid in. In some plans that takes many years.
3. What the illustration assumes. Check the growth rate. A table based on an optimistic growth rate overstates the future value.
4. Which charges stop. Find the date when exit charges end.
5. Any bonus or reward. Check whether it needs you to stay to a set date.

If the table is not in your documents, ask the provider for it in writing. Our reviews of named plans show what the tables look like in practice, for example Zurich Vista, FPI Premier Advance and RL360 Quantum.

A worked example

This example is illustrative and uses invented round figures.

An expat pays £400 a month into a 20-year plan. After four years she has paid in £19,200. The surrender table shows the following.

• Year 1: paid in £4,800, surrender value £1,200
• Year 2: paid in £9,600, surrender value £4,500
• Year 3: paid in £14,400, surrender value £8,800
• Year 4: paid in £19,200, surrender value £14,000

She wants to stop. Surrendering now gives £14,000, a shortfall of £5,200 against what she paid in, before any investment growth is considered. The table also shows that the exit charges fall away later, so waiting would reduce the shortfall.

Her choice depends on what she needs and what she can afford, not on the table alone.

Your options if you want out

You usually have several options. The right one depends on your plan and your needs.

1. Carry on paying. If the payments are affordable, continuing may cost less than surrendering, especially if exit charges are about to end.
2. Reduce the payments. Some plans allow a lower amount. Check whether charges rise as a share of what you pay.
3. Pause or stop and leave it paid-up. Your money stays invested, but charges may continue. Ask the provider what you would pay.
4. Surrender. You take the value now and accept the loss. This ends the plan and any further charges.
5. Switch to another plan or investment. The new plan may have its own charges and a new start date. Compare carefully, and do not cancel the old plan until you know the cost.

Whichever you choose, ask for the figures in writing before you decide.

Do you have a cooling-off period?

Many plans give a short period after you sign during which you can cancel and get your money back, but the length and terms vary. Check your policy documents. If you are still inside that period, cancelling may be much cheaper than leaving later.

Questions to ask your provider

• What is the surrender value today, and on the next three anniversaries?
• When do the early exit charges end?
• What would I pay if I made the plan paid-up?
• Can I reduce or pause payments, and what does that cost?
• Do I lose any bonus or reward if I leave?
• Is there a charge to transfer to another provider?

Common mistakes

• Trusting the sales illustration and never checking the surrender table.
• Cancelling and opening a new plan without counting the cost of the old one.
• Stopping payments without knowing the paid-up charges.
• Leaving the plan unreviewed for years.
• Assuming the charges stop when you stop paying.

When to take advice

If your plan has been running for several years, if you hold more than one or if the amounts are large, take regulated advice before you decide. Ask the adviser how they are paid. For the wider picture, see our regular savings plans page and our expat savings hub.

Frequently asked questions

What are early exit charges on a regular savings plan?

They are the costs you bear if you stop or cash in before the end of the term, usually because the plan recovers its set-up costs from your payments over time.

Why is my surrender value lower than what I paid in?

Because charges are taken early. Until they are recovered, the surrender value can be well below your total payments.

Can I get my money back if I stop paying?

You can usually cash in, but you receive the surrender value, which may be less than you paid. A cooling-off period may let you cancel and get your money back if you are still within it.

Should I surrender or leave the plan paid-up?

It depends on the charges that continue on a paid-up plan and on what you need. Get the figures in writing before you decide.

When do early exit charges end?

It depends on the plan. Your documents should show the date, and the provider can confirm it.

This article is for information only and is not financial advice. Plan terms differ and can change. Read your documents and take regulated advice before you act.