A CAP on the charges savers face for withdrawing money from their pensions could be imposed by the government, following concerns that some people trying to use the new retirement freedoms are coming up against high fees and other barriers.
Chancellor George Osborne has said a Treasury consultation will be launched next month, to make sure that people are not charged excessive early exit fees and are treated fairly when moving their pension to a company that offers them flexible options to access their savings.
If evidence of any excessive early exit fees is found, the option of imposing a cap on these charges for people aged 55 and over will be looked at.
The government will also be looking at how to make the process of transferring pensions from one scheme to another go more quickly and smoothly.
Mr Osborne said there were “clearly concerns” that some companies are not doing enough to make the new freedoms available.
But the Association of British Insurers (ABI) said it rejects any suggestions that the industry is putting unnecessary obstacles in customers’ way, adding that the freedoms had been brought in with a “rushed timetable”.
The freedoms mean that instead of having to buy a retirement annuity, people aged 55 and over with a defined contribution (DC) pension can take their pot how they wish, subject to tax.
Savers can also take their pot in one go, or in slices. But it is up to companies themselves to decide whether they want to offer the full range of new freedoms.
Last week, it emerged people were facing high charges for withdrawals or for switching to rival firms, delays in paying out cash and having to pay up to £1,000 for financial advice if they want their money.
The ABI said firms are “working flat out” to deal with the unprecedented levels of demand seen from customers since the freedoms came into force on 6 April.
During the first month of the reforms, firms handled 1.13 million phone calls from people who were interested in the new freedoms – marking an 80 per cent increase on normal levels.
The ABI said that some older schemes may charge an exit fee – and this is not a penalty where customers leave the scheme early, but reflects expenses already paid by the provider, such as commission, in setting up the policy. This would normally be paid back by the saver if they had stayed in the scheme to their retirement date as originally intended. It said that nearly nine in 10 customers eligible for the pension freedoms will not face early exit fees.
ABI director general Huw Evans said: “With so many issues unresolved due to its rushed timetable, it is not surprising that the government has had to announce this consultation.
“Despite the lack of some crucial detail, insurers are continuing to work flat out to help customers on the basis of laws and regulations so far in place.
“We agree that further clarity is needed and have been calling for it for some time. But we reject any suggestions that the industry is putting up unnecessary obstacles to hinder customers exercising their pension options.
“It needs to be remembered that the vast majority of customers eligible for the pension freedoms will not face any early exit fee. Where one is charged it is not a penalty for leaving early, but to cover the costs of setting up the pension, particularly commission.”
The Economic Secretary to the Treasury, Harriett Baldwin, has also written to Martin Wheatley, chief executive of the Financial Conduct Authority, confirming that the regulator will gather information from providers to understand the scale of the problems facing people who want to transfer to a different pension provider.