The Treasury will legislate to cap excessive early exit charges levied on savers using pension freedom, it has confirmed.
The Financial Conduct Authority (FCA) will be tasked with implementing the policy.
Speaking in the House of Commons, Chancellor George Osborne (pictured above) 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."
He added: "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 FCA to cap excessive early exit charges for pension savers."
Osborne said the government was "determined that people who've done the right thing and saved responsibly are able to access their pensions fairly".
The duty will form part of the response to the government's Pension Transfers and Exit Charges consultation, and will help people take full advantage of the new flexibilities.
FCA data collected through the consultation showed that nearly 700,000 (16%) 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 the government consider that they effectively put them off accessing their pension flexibly.
The independent FCA will be responsible for setting the level of the cap and will consult fully on this in due course, the announcement said.
Pension freedom, which came into effect on 6 April 2015, give defined contribution savers over the age of 55 complete access to their pension pots.
The Treasury said so far almost 400,000 pension pots have been accessed flexibly under the new freedoms with many providers offering their customers a range of options.
It said the government will shortly publish its formal response to the Pension Transfers and Exit Charges consultation, which also looks at ways of making the process for transferring pensions from one scheme to another quicker and smoother.
- FCA investigations have shown that 670,000 consumer aged 55 or over faced an early exit charge
- Of these, 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%
Hargreaves Lansdown head of retirement policy Tom McPhail 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."
He added: "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."
McPhail said the Treasury had originally proposed one of three options:
- A voluntary cap on exit charges
- A flexible cap in certain circumstances
- A cap on all early exit fees
"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," he said.
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