Pension exit fee consultation starts
- Published
The government has formally launched a consultation, to decide whether pension exit fees should be capped.
Putting a limit on exit charges is one of three options that will be considered for anyone over 55.
It follows frustration that some people trying to take money out of their pension savings face excessive charges.
Despite April's pension changes, a few providers are making it difficult, or even impossible, for people to withdraw their money.
Some firms have been accused of charging up to 20% of the value of the pension pot.
The government will also consider making it easier to switch from one provider to another.
"We want to ensure that pension providers are not using exit charges and restrictions as a barrier to switching, just when the government is providing pensioners with greater freedoms," said David Cameron.
'Trapped'
However, the pensions industry said it was already working to solve the problems that some people are finding.
"No pensions sold on the market today have early exit fees, and nearly nine out of 10 people making use of the pension freedoms will not face an early exit fee," said Ben Gaukrodger, manager for savings policy at the Association of British Insurers, which represents most of the pension providers.
In the consultation document, the Treasury has suggested three options for dealing with the firms that do make hefty charges:
- A cap on all "excessive" exit fees
- A flexible cap that could be used in certain circumstances
- A voluntary approach to restricting exit fees and charges
'Failure to act'
While most firms in the industry support the plans, some said that safeguards should also apply to people under the age of 55 who want to switch pension provider.
"Many other people are trapped in poor value pensions and yet face high exit penalties if they want to move elsewhere," said Patrick Connolly of the financial planning firm Chase de Vere.
The TUC joined in criticism, saying that £26bn was locked away in legacy accounts with high fees.
"Action to clamp down on unreasonable fees and charges should not be limited to pet government projects such as its so-called pension freedom," said the TUC's general secretary, Frances O'Grady.
"The pensions industry and government have failed to act robustly," she said.
The consultation will last until 12 October and the government will decide afterwards whether to legislate.
Pension changes 2015
- People aged 55 and over can withdraw any amount from a Defined Contribution (DC) scheme, subject to income tax
- Tax changes make it easier to pass pension savings on to descendants
- Many people with Defined Benefits (DB) schemes will be allowed to transfer to DC plans
- All retirees will have access to free guidance from the government's Pension Wise service
- Existing annuity holders are unaffected for the time being, but there are plans for them to be able to sell their annuity
Since the changes in April, 85,000 people have withdrawn £1.2bn from their pensions savings, according to the government.