Government launches pension exit fees probe
Schemes will face scrutiny to ensure there are no barriers to pension freedoms.
The Chancellor, George Osborne, has announced a consultation into pension exit fees and transferring pension schemes.
The government says it will put firms under scrutiny to ensure there are no ‘unjustifiable’ barriers to pension savers taking advantage of the full flexibilities offered by the new pension freedoms.
Threats to freedom
The new pension freedoms, which came into force in April, allow pension savers aged 55 or over to use their pension savings however they want.
This means they’re no longer required to use their pot to buy an annuity and can now choose to cash in or keep the money invested and make partial withdrawals.
The Government says that so far 60,000 people have taken advantage of the reforms.
However, not all pension firms are allowing access to the full flexibilities, which means savers have to switch schemes in order to access their cash.
This has raised concerns over the process and the fees involved with moving pensions between providers.
The Government said it wants all individuals to be able to transfer their pension easily, within a reasonable timeframe and at a reasonable cost, so that they can take full advantage of the new rules.
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Industry response
The Association of British Insurers (ABI) welcomed the consultation but defended providers, claiming nearly nine in ten customers eligible for the pension freedoms would not face early exit fees.
Huw Evans, Director General, commented: “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.”
Strengthening pension freedoms
From next month the Treasury will consult to ensure people are not being charged excessive early exit penalties and are treated fairly when moving their pension to a company that offers them flexible options to access their pension savings.
At the same time as the Government’s consultation, the Financial Conduct Authority (FCA) has confirmed that it will gather information from providers to take stock of the scale of the problems facing people who want to transfer to a different pension provider.
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