Pensions minister Steve Webb: 'Scrap penalties to ditch dismal pension funds Steve Webb, the pensions minister, told The Daily Telegraph: "Leading insurers need to be looking at their back book of pensions. If they come across pension policies with charging structures that they wouldn't dream of offering today, they should review them. And that includes scrapping exit penalties. Mr Webb's warning adds to the increasing pressure being put on the pension industry to ditch high exit fees. Ros Altmann of Saga said the Financial Services Authority had once again "been caught asleep at the wheel." She added: "Why didn't the FSA look at this earlier? Savers in old-style contracts have been paying 4pc a year and on top of that they have suffered poor performance. They then get hit with a 20pc exit fee when they want to move to a better pension. How can that be justified? It will be legally difficult to force pension providers to do something but the industry should behave honourably if it ever wants people to trust it again. Malcolm McLean of Barnett Waddingham, the pensions adviser, said: "The FSA should call for an amnesty. I doubt that it can force pension providers to cancel old contracts, but they should think long and hard on whether it's right and fair to continue with these policies. Any pension plans older than 10 years should have their exit fee waived so savers have an opportunity to regain the lost ground and give themselves a chance of getting a decent-sized pension. Mr Webb insisted that people investing in pension funds today were getting better value for money but said "legacy issues are always the problem" with pensions. For example, many old-style pension contracts included charges for investing in so-called "capital units" for the first two years of the plan and then fees on "accumulation units" for the remainder of the contract. Yet the capital units attracted a higher charge, which continued to be levied for the entire length of the contract (up to 40 years); they were often levied to pay for any advice a saver may have been given. One policyholder with an old M & G pension discovered that his £32,000 plan was worth only £16,000 because of the charge on capital units. Ned Cazalet, an insurance analyst, said pre-stakeholder pensions were extremely profitable for insurers. They used to boast how much money they would make at presentations. These contracts had multifaceted charging structures - capital units, bid/offer spreads, monthly fees. It would not be uncommon for a 25 year-old taking out a pension for 40 years to pay a fee of 3.5pc on capital units. Mr McLean urged savers who took out pensions before 2001 to check the terms and conditions to see how much they were being charged. The charges furore comes with trust in the pensions industry - as in the banks - at a very low ebb. High fees from legacy plans and poor returns have, not surprisingly, turned many people off saving in a pension. The Institute of Directors recently warned that "pensions are failing the British public." The demise of the final salary pension scheme has resulted in workers being moved into inferior company pensions ("defined contributions" schemes) that are not guaranteed - what you get depends on how much you put in, what your money is invested in and how high annuity rates are when you retire. Over the coming weeks, many companies will be sending out statements to workers detailing how their fund is performing. They will not make pretty reading. Most managed funds will have struggled to make any money last year - the £2.3bn Abbey Managed pension fund has fallen by 3pc over the past year and has risen by only 4.9pc over five years, while Barclays' Managed pension is down by 0.4pc over a year and has climbed by only 3.9pc over the past five years. There are growing fears that people will get their statements and say enough is enough and walk away from saving in a pension altogether. According to research by the National Employment Savings Trust, the new government-inspired national pension scheme, younger people who see their fund falling will stop contributing to their pension. Tom McPhail of Hargreaves Lansdown is worried that workers might react in haste. He said: "Very few investments are making any money at present. I'm concerned that the industry, regulators and policymakers haven't spent enough time in helping investors to engage with their investments and to understand how saving for retirement works. Mr McLean also feared that workers might vote with their feet. "Anecdotal evidence suggests that disenchanted workers are leaving schemes," he said. The Association of British Insurers said it was "scoping" the exit fee issue but that it had no idea how big a problem it was. Otto Thoresen, its director general, said: "Where exit charges do exist, they are there to protect those who still have money in the fund, or because the contract was set up for a longer period but the customer benefited from charges which were lower than the insurer's costs. Where exit charges are included, it will always be made clear in the terms of the contract.