Speaking at Treasury Oral questions in the House of Commons, the Chancellor George Osborne 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.
"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 Financial Conduct Authority to cap excessive early exit charges for pension savers.
"We’re determined that people who’ve done the right thing and saved responsibly are able to access their pensions fairly."
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 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.
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%.
The FCA will be responsible for setting the level of the cap and will consult fully on this in due course.
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, 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.
“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.
“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.”
