Government set to introduce cap on pension fund exit fees
The Government has announced its intention to introduce new laws to cap the fees charged by providers when people choose to withdraw money from their pension pot early.
Chancellor George Osborne told the House of Commons that up to 700,000 people faced ‘excessive’ exit 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’.
Since April 2015, anyone aged over 55 has been allowed to withdraw as much as they like from their pension pot, subject to income tax. However, large exit fees may have discouraged many from doing so.
According to the Treasury, some 66,000 people over the age of 55 currently face charges worth more than 10% of their pension pots, while the Pensions Minister Baroness Altmann has claimed that some people can lose up to 40% of a pension fund’s value in fees.
However, many of the funds with large fees date back 20 or 30 years. Dr Yvonne Braun of the Association of British Insurers (ABI) said: ‘More than eight out of ten customers do not have to pay early exit charges to access their pensions. Where they do, most fees are below 5% and were put in place decades before the freedom and choice reforms were introduced.’
The level of the cap will be set by the Financial Conduct Authority (FCA) after a public consultation, and the Treasury has said that it will be at least two years before the new law is passed.