Government clampdown on pension exit fee rip offs

Updated
George Osborne visit to Cardiff
George Osborne visit to Cardiff



The government has announced a clampdown on excessive exit fees being imposed by pension companies when people take advantage of new pension freedoms. The move will make retirement less expensive for thousands of people overnight.

Some companies have been imposing exit fees on people who want to take advantage of new pension freedoms. The fees kick in when they withdraw cash from their pension after the age of 55, or transfer to a pension that will enable them to do so. In some cases pensioners ended up paying thousands of pounds in fees.

The fees

Research from the FCA in 2015 found that although 83.6% of firms didn't impose exit fees on customers aged 55 and older - 700,000 people still faced exit fees of some sort.

Some 8.8% of pension firms charged up to 2% of the value of the fund, 4% charged between 2% and 5% of the fund value, 2% charged 5%-10%, and 1.6% charged more than 10% of the value of all the cash in the pension.

And while these charges amounted to less than £250 for 9.2% of people, they came to more than £1,000 for 2.6% of people (870,000).
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The crackdown

The government started consulting on these fees back in July last year, when reports emerged of people facing thousands of pounds in fees.

George Osborne has now announced plans to cap them. He said: "We've listened to the concerns and the newspaper campaigns that have been run and today we're announcing that we will change the law to place a duty on the Financial Conduct Authority to cap excessive early exit charges for pension savers. We're determined that people who've done the right thing and saved responsibly are able to access their pensions fairly."

"The Government isn't prepared to stand by and see people either ripped off or blocked from accessing their own money by excessive charges."

What next?

The government will push through the legislation, and then it will be up to the FCA to set the maximum level of fees allowed - which it will consult on first.

Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown welcomed the announcement, saying: "We hope that all pension investors will now be able to exercise free control over their pension pots. Any exit penalties should be limited to no more than a proportionate administration charge based on the actual costs incurred."

He added that anyone wanting to take advantage of the new freedoms - who feels their provider is charging excessive fees - may want to wait for the change - although he accepts: "It is unclear at this stage how rapidly the change can be introduced."

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