Pension exit charges may be capped

Press Association
Prime Minister's Questions
Prime Minister's Questions

A cap on the charges that savers face for withdrawing money from their pensions could be imposed by the government, following concerns that some people trying to use the new retirement freedoms are coming up against high fees and other barriers.

Chancellor George Osborne has said that a Treasury consultation will be launched next month, to make sure that people are not charged excessive early exit fees and are treated fairly when moving their pension to a company that offers them flexible options to access their savings.

If evidence of any excessive early exit fees is found, the option of imposing a cap on these charges for people aged 55 and over will be looked at.

The government will also be looking at how to make the process of transferring pensions from one scheme to another go more quickly and smoothly.

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Mr Osborne said there were "clearly concerns" that some companies are not doing enough to make the new freedoms available.

But the Association of British Insurers (ABI) said it rejects any suggestions that the industry is putting unnecessary obstacles in customers' way, adding that the freedoms had been brought in with a "rushed timetable".

The freedoms mean that instead of having to buy a retirement annuity, people aged 55 and over with a defined contribution (DC) pension can take their pot how they wish, subject to tax.

Savers can also take their pot in one go, or in slices. But it is up to companies themselves to decide whether they want to offer the full range of new freedoms.

Calculate your pension income options

Last week, an investigation by the Daily Mail found people were facing high charges for withdrawals or for switching to rival firms, delays in paying out cash and having to pay up to £1,000 for financial advice if they want their money.

The ABI said firms are "working flat out" to deal with the unprecedented levels of demand seen from customers since the freedoms came into force on April 6.

During the first month of the reforms, firms handled 1.13 million phone calls from people who were interested in the new freedoms - marking an 80% increase on normal levels.

The ABI said that some older schemes may charge an exit fee - and this is not a penalty where customers leave the scheme early, but reflects expenses already paid by the provider, such as commission, in setting up the policy. This would normally be paid back by the saver if they had stayed in the scheme to their retirement date as originally intended.

It said that nearly nine in 10 customers eligible for the pension freedoms will not face early exit fees.

Huw Evans, director general of the ABI, said: "With so many issues unresolved due to its rushed timetable, it is not surprising that the Government has had to announce this consultation today.

"Despite the lack of some crucial detail, insurers are continuing to work flat out to help customers on the basis of laws and regulations so far in place.

"We agree that further clarity is needed and have been calling for it for some time. But we reject any suggestions that the industry is putting up unnecessary obstacles to hinder customers exercising their pension options.

"It needs to be remembered that the vast majority of customers eligible for the pension freedoms will not face any early exit fee. Where one is charged it is not a penalty for leaving early, but to cover the costs of setting up the pension, particularly commission."

New MPs in Westminister
New MPs in Westminister

The Economic Secretary to the Treasury, Harriett Baldwin, has also written to Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), confirming that the regulator will gather information from providers to understand the scale of the problems facing people who want to transfer to a different pension provider.

A spokeswoman for the FCA said: "It is in the interest of all consumers that the retirement market works well following the pension reforms. We are already monitoring how firms have been implementing the changes and will be gathering further data in the next few weeks."

The Daily Mail spoke to savers who were being asked to sign letters saying they had sought financial advice, and paying up to £1,000 for the privilege, while others said they had to wait 90 days to move their money to newer schemes so they could access it.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "The government appears to be losing patience with those elements of the pensions industry which are failing to measure up to the promises of freedom.

"Every pension investor over the age of 55 should be able to access their retirement savings with the minimum of cost and administrative inconvenience. It is not acceptable to charge punitive exit penalties or to insist that investors pay for a financial adviser.

Calculate your pension income options

"Any pension providers or schemes which can't or won't deliver should let their customers leave so that they can benefit from the freedoms elsewhere."

General Election 2015 campaign - April 17th
General Election 2015 campaign - April 17th

Last week, Pensions Minister Ros Altmann told BBC Radio 5 Live: "If things aren't working properly, we will take action".

She said: "Obviously it's disappointing that the industry, having had over a year to prepare for all of this, doesn't seem in many cases to have quite got its act together in the way that customers might have hoped."

Many of the changes introduced in April were announced in the 2014 Budget, although members of the industry raised concerns in the months before they were due to start that crucial details of how they would work were still missing.

TUC general secretary Frances O'Grady said: "Pensions freedom is looking increasingly like a botched DIY job. The Chancellor is attempting to shave a bit off here and add a bit there just to make his flagship policy work."

Are UK Pension Funds Overpaying Fees?
Are UK Pension Funds Overpaying Fees?