19th January 2016
The Chancellor has announced that the Government will cap exit early charges on pensions.
George Osborne, told the House of Commons that as many as 700,000 have to pay these fees.
He said: “The government isn’t prepared to stand by and see people either being ripped off or blocked from accessing their own money by excessive charges.”
Andy Bell, chief executive at AJ Bell, says: “This is a welcome move by the Chancellor. An early encashment penalty that gets in the way of someone accessing the pension freedoms feels wrong. We’d prefer to see a complete ban but a cap to prevent excessive charges is a big improvement on where we are today.
“45% of financial advisers that we spoke to have clients that have been prevented from accessing the new pension freedoms due to early encashment penalties. The whole point of pension freedoms was to give people flexibility and choice, if you can’t offer your customers that, why should you be allowed to charge them an early encashment penalty if they want to transfer somewhere else?
“The main reason given for exit fees is to cover initial costs but you have to question whether it is reasonable to still be collecting charges for events that may have happened around a quarter of a century ago. It is debatable whether some exit fees really do relate exclusively to initial set up costs or whether they are actually about on-going provider profitability. In reality the charge was baked into the contract many years ago to ensure the provider made the requisite amount of money out of the product.”
Nutmeg chief executive Nick Hungerford also welcomes the move.
He says: “Early exit charges are often unnecessary, and a sly way to make money from customers that have decided to take action with their pension. Charges are levied in the interests of the pension provider and against the interests of the consumer. They deter customers from switching to services that are better suited to them, 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.
“As we build up the national debt and the state pension in its current state becomes unaffordable, people will increasingly have to rely on their own savings in retirement. It’s vital that high quality, fairly-priced and fully transparent pension products are made available to all who want to invest for their future.”