Pension providers won't be able to charge "excessive" fees to people accessing their pension funds.
The Government has announced a crackdown on pension fund exit fees.
The introduction of pension freedoms last year has proved hugely popular with 400,000 people accessing their pension savings. But hundreds of thousands of pensioners have had to pay a hefty fee to get hold of their own money.
Chancellor George Osborne has now acted to stop pension firms ripping customers off at the final hurdle.
“The pension freedoms we’ve introduced have been widely welcomed, but we know that nearly 700,000 people who are eligible face some sort of early exit charge,” Osborne said. “The Government isn’t prepared to stand by and see people either ripped off or blocked from accessing their own money by excessive charges.”
The Treasury has asked the Financial Conduct Authority (FCA) to introduce and police a cap on excessive exit charges for pensions.
“We’re determined that people who’ve done the right thing and saved responsibly are able to access their pensions fairly,” Osborne said as he announced the change in Parliament.
The cost of charges
An investigation by the FCA has found that 670,000 customers aged 55 or over faced an early exit charge. Of these, 358,000 faced charges between 0-2%; 165,000 faced charges between 2-5%; 81,000 charges between 5-10%; and 66,000 faced charges of more than 10%.
[SPOTLIGHT]The move has been welcomed by pension experts who say the charges may put people off accessing their hard earned and saved cash.
“Hundreds of thousands of pension investors currently face charges and restrictions if they want access to the pension freedoms or to transfer their money to a new pension arrangement. In some cases these penalties can run to hundreds or even thousands of pounds. This kind of financial bondage has no place in the 21st century,” says Tom McPhail, head of retirement policy at investment company Hargreaves Lansdown.
A cap on pension exit charges could also increase trust in the pension industry, according to Nick Hungerford, the chief executive of investment firm Nutmeg. “Early exit charges are often unnecessary, and a sly way to make money from customers that have decided to take action with their pension,” says Hungerford.
“They deter customers from switching, or accessing their long term and hard-earned savings. As such they prevent effective competition in an industry that desperately needs to restore trust and they exasperate customers’ frustration that even doing the right thing results in unfair treatment by financial service providers.”
The level of the cap will be decided by the FCA.
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