HM Treasury has confirmed it will be introducing curbs on excessive pension exit penalties.
Chancellor George Osborne today (19 January) outlined proposals to place a duty on the Financial Conduct Authority to cap excessive early exit charges for those eligible to access the pension freedoms.
Speaking at Treasury oral questions in the House of Commons, he stated nearly 700,000 people who are eligible face some sort of early exit charge.
He 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.
“We have 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 FCA to cap excessive early exit charges for pension savers.”
The new duty, introduced through legislation, will form part of the response to the government’s pension transfers and exit charges consultation.
FCA data collected through the consultation showed that nearly 16 per cent customers in contract-based schemes who are able to flexibly access their pension could face some sort of early exit charge, including a significant minority who faced charges that were high enough that they effectively put them off accessing their pension flexibly.
The government will shortly publish its formal response to the consultation, which also looks at ways of making the process for transferring pensions from one scheme to another quicker and smoother.
The regulator will be responsible for setting the level of the cap and will consult fully on this in due course, promised the Treasury in a statement.
“This kind of financial bondage has no place in the 21st century.”Of these, 358,000 faced charges between 0-2 per cent; 165,000 faced charges between 2-5 per cent; 81,000 faced charges between 5-10 per cent; and 66,000 faced charges above 10 per cent.
Figures published last week by AJ Bell revealed almost half of all financial advisers have clients prevented from accessing the new pension freedoms due to early encashment penalties. The firm’s chief executive Andy Bell said that while he would prefer a complete ban, a cap to prevent excessive charges is a big improvement.
“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?”
Yvonne Braun, the Association of British Insurers’ director of long-term savings policy, noted that as the FCA acknowledge, more than eight out of 10 customers do not have to pay early exit charges to access their pensions.
“Where they do, most fees are below 5 per cent and were put in place decades before the Freedom & Choice reforms were introduced. We will engage closely with the FCA and Treasury on this issue going forward.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, added that 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,” he added.
peter.walker@ft.com
