17th June 2015
The Treasury is considering a cap on the exit penalties levied on pensions over fears that some retirees are being charged an excessive amount to take advantage of new freedoms.
Yesterday the Chancellor George Osborne revealed that so far 60,000 people had taken advantage of new flexibility to transfer more than £1bn out of their pension pots since April – an average of £17,000 each.
But an investigation by the Daily Mail found that a third of pensions don’t qualify for new rules.
It revealed that up to six million policies could be difficult to cash in including 2.3 million final salary pensions.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says: “The government appears to be losing patience with those elements of the pensions industry which are failing to measure up to the promises of freedom. Every pension investor over the age of 55 should be able to access their retirement savings with the minimum of cost and administrative inconvenience. It is not acceptable to charge punitive exit penalties or to insist that investors pay for a financial adviser. Any pension providers or schemes which can’t or won’t deliver should let their customers leave so that they can benefit from the freedoms elsewhere.”
In the past two months Hargreaves Lansdown has handled 67,000 phone calls from retiring investors.
McPhail adds: “One further option for the government might be to use the rules around providing auto-enrolment schemes as a mechanism to force pension providers to deliver a better service to their customers. Electronic transfers also provide a mechanism to significantly reduce pension transfer times, unfortunately they have not yet been universally adopted by the pensions industry.”
Frances O’Grady, TUC general secretary, says: “Pensions freedom is looking increasingly like a botched DIY job. The Chancellor is attempting to shave a bit off here and add a bit there just to make his flagship policy work.
“There were plenty of warnings that rushing in these changes was unwise. We need genuine action to remove unfair fees and charges on all pensions. Piecemeal reform would just be letting savers down.”
Speaking at Prime Minister’s Questions George Osborne said that the Treasury will consult to ensure that people are not charged excessive early exit penalties and are treated fairly when moving their pension to a company that offers them flexible options to access their savings.
The government says it has already strengthened the right to transfer to a new pension scheme but that it wants all individuals to be able to transfer their pension easily, within a reasonable timeframe and at reasonable cost, so that they can take full advantage of the new flexibilities.
In particular, the consultation, due to launch next month, will look at:
– Options to address any excessive early exit penalties. These include, if there is evidence of such penalties, the option of imposing a legislative cap on these charges for those aged 55 or over
– Making the process for transferring pensions from one scheme to another quicker and smoother, to help people make use of the new freedoms
The Economic Secretary to the Treasury, Harriett Baldwin, has also written to Martin Wheatley, CEO of the FCA, confirming that the FCA will, in tandem with the government’s consultation, gather information from providers to understand the scale of the problems facing individuals who want to transfer to a different pension provider.