CompaniesJun 17 2015

Gov’t to consult on capping pension exit charges

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Gov’t to consult on capping pension exit charges

George Osborne has revealed the government is set to consult on exit charges to ensure that savers are not penalised if they wish to transfer their pension scheme to access pension freedoms.

Speaking at Prime Minister’s questions today (17 June), during which the chancellor stood in for the prime minister in his role as deputy, Mr Osborne said that the Treasury will consult to ensure people are treated fairly when moving their pension to one that offers the flexible options now enshrined in legislation.

In particular the consultation, set 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 charges for those aged 55 or over.

There has been criticism in the past of schemes which do not offer full freedoms and which will not waive early exit penalties, which are built into many older policies and can in extreme cases be as high as 20 per cent of the fund value.

The consultation will also look at making the process for transferring from one scheme to another quicker and smoother, to help people make use of the new pension freedoms, which came into force in April.

So far government statistics have revealed that 60,000 people have taken advantage of pensions flexibilities with many providers offering their customers a range of options. In figures disclosed to parliament yesterday, it was revealed £1bn has been withdrawn from funds since April.

However, not all providers are offering the full range of access options and there has been criticism of delays, excessive barriers being put in the way of savers or of costs being imposed.

Most recently, Friends Life was forced to write to 1,300 customers who had requested partial pension withdrawals, telling them that the flexi-access drawdown option was no longer going to be offered due to the complexity of their pension back book.

Writing in the Telegraph over the weekend, the secretary of state for work and pensions Iain Duncan Smith stated that some savers have been effectively “handcuffed”, pointing out to insurers that “it is their money that you hold, not yours”.

Mr Duncan Smith expressed concern that “some firms still appear to be dragging their feet”, adding that it is their responsibility to sort this situation out and look after customers.

Harriett Baldwin, the economic secretary to the Treasury, has also written to Financial Conduct Authority chief Martin Wheatley, 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.

A spokesperson for the regulator told FTAdviser: “It is in the interest of all consumers that the retirement market works well following the pension reforms. We are already monitoring how firms have been implementing the changes and will be gathering further data in the next few weeks.”

Tom McPhail, head of pensions research at Hargreaves Lansdown, said that 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.

He said: “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.”

donia.o’loughlin@ft.com