George Osborne’s call for cap on pension exit fees welcomed
George Osborne has called for a cap to be placed on pension exit fees with the FCA set to swing into action on the issue once a consultation has been completed.
Speaking at Treasury Oral questions in the House of Commons, the Chancellor said: “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.The government isn’t prepared to stand by and see people either ripped off or blocked from accessing their own money by excessive charges.
“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 cap will be legislated for as part of the response to the government’s Pension Transfers and Exit Charges consultation.
16% of people using contract based schemes which include flexibility toa ccess them could face an early exit charge, which amounts to nearly 700,000 customers, with a significant number saying the charge was enough to put them off using the flexibility completely.
358,000 faced charges between 0-2%; 165,000 faced charges between 2-5%; 81,000 faced charges between 5-10%; and 66,000 faced charges above 10%.
The cap will be set by the FCA, who have said they will consult on what level it is introduced at.
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, said: “We welcome this announcement; 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.
“Investors who are looking to take advantage of the freedoms but who are currently facing exit penalties, may want to hold back now in order to benefit from the new ban, though it is unclear at this stage how rapidly the change can be introduced.
“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.”