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Hope of amnesty on pension exit penalties
Major pension companies are battling to avoid legal "cap" on charges that will allow thousands to cash in their savings early at much lower costs
Savers who face large penalties to cash in their pensions early could be granted an amnesty under plans discussed by industry executives.
On Thursday David Cameron threatened to introduce new laws unless pension companies stopped levying "unfair" fees on people who access their pensions in their 50s and early 60s.
Some customers face fees as high as 20 per cent if they withdraw the money before a specific retirement date, typically age 65.
The Telegraph has learnt that major pension companies have already held meetings with the financial regulator to avoid a draconian "cap" on charges, which experts believe could be set at around 2.5 per cent.
Executives at a number of firms are understood to be sympathetic to an amnesty in which all companies might reduce their fees at the same time.
Such action would give thousands of people sold pensions in the Eighties and Nineties, many of whom are still in work, immediate access to their cash. Many had planned to use the retirement freedoms introduced in April to make home improvements or buy-to-let properties, only to discover onerous restrictions in their policy contracts.
An industry-wide agreement between insurers would also ensure that no provider faced a sudden exodus of customers to rival companies, which is a concern among senior executives.
The amnesty is being held back, however, by fears that it would breach competition law, as it might be classed as price fixing, insiders said.
Yet the door was left open yesterday by the Prime Minister as he announced a consultation on removing "unjustifiable" fees.
The Treasury consultation document threatened to "enact legislation aimed at capping all exit charges ... for those aged 55 and over and before their scheme retirement date". The limit could be a fixed percentage or monetary amount, it said.
Ministers also asked pension firms to suggest a "voluntary" approach. One option would be allowing customers to move to another of the provider's own policies, making it less likely that they would cash in the entire fund.
Old Mutual, a FTSE 100 insurance company, said it "welcomed" action to address exit penalties, and said the industry "needs to act together". Other major companies were less forthcoming.
In the Eighties and Nineties it was common for insurance companies to include exit penalties in the terms and conditions of private pensions.
The clauses were deemed necessary to ensure that the company could recoup the cost of the commissions paid to salesmen.
Such penalties are now considered unfair and no longer written into new policies.
Experts said the Government consultation was a "wake-up call" that gave the industry little option but to demonstrate it was "capable of dealing with the issue itself".
A spokesman for the Association of British Insurers, the trade body, said: "Providers will engage constructively with this consultation so all the relevant facts and issues can be fully understood."
dan.hyde@telegraph.co.uk