Pension exit fees could be capped
The Government has confirmed that it will consider capping the exit fees for people who want to access their pensions early.
The Treasury consultation is intended to help people aged 55 and over access the new pension freedoms easily and at a 'reasonable cost'.
The consultation is in response to concerns that some pension providers are not making the new pension flexibilities available to savers by charging excessive exit fees.
The new pension freedoms came into effect on 6 April and allow people with a defined contribution pension to access and use their savings from age 55.
The Government said that it is mindful of any cap that could "discourage investment in certain asset classes, and the potential legal impact on existing contracts of applying the cap retrospectively".
Three options to address early exit fees
The Government is considering three options to address early exit fees and charges:
1. A cap on all early exit fees
The government could enact legislation to cap all exit charges for those aged 55 or over either at a fixed percentage of the value of funds being transferred, or at a capped monetary amount.
2. A flexible cap in certain circumstances
For smaller funds, a cap could be limited to pots above a certain 'de minimis' threshold or be tailored to apply to particular components of an exit charge that are difficult to justify as fair treatment or customers.
3. A voluntary approach to restricting early exit fees and charges
This option would allow the industry to take the leading role in addressing any concerns about early exit fees and charges. It would provide scope for trustees and managers to consider action, such as waiving or reducing early exit charges in appropriate circumstances.
As part of its consultation, the Government will also look at how the process for transferring pensions from one scheme to another can be simplified and undertaken at a reasonable cost – and within a reasonable timeframe.