Both the Chancellor of the Exchequer, George Osborne, and Secretary of State for Work and Pensions, Iain Duncan-Smith have raised concerns in recent weeks that some companies are failing to play their part in making pension freedoms available to savers.
Osborne first announced plans to "strengthen people's rights to access their pensions flexibly" at Prime Minister’s Questions last month,
The consultation will investigate options to address "excessive charges" for early exit penalties by potentially imposing a legislative cap on these charges.
It also wants to make the process for transferring pensions from one scheme to another "quicker and smoother" and ensure that there is "greater clarity" around the circumstances in which someone should seek financial advice.
Finally, it will look at what more can be done to ensure that everyone has the opportunity to transfer their pension at a "reasonable cost and within a reasonable timeframe".
However nine in ten customers eligible for the pension freedoms will not face early exit fees, according to the Association of British Insurers.
Some older schemes may charge an exit fee; 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.
The Economic Secretary to the Treasury, Harriett Baldwin, and the Minister for Pensions, Ros Altmann, have written to the FCA and The Pensions Regulator asking them to gather information from the industry on the fees and charges customers currently face.
The consultation will run for 12 weeks and a response will be published in the Autumn.
Paul Green, director of communications at Saga, commented:
"George Osborne was right to trust people with their own money but many pension firms have seen this as an opportunity to take advantage of savers and make some quick money. We are pleased that the Government is taking action and thinking about abolishing exit fees or introducing a cap on them to stop pension companies from ripping off savers. People haven't saved all their lives to have it snatched away by pension firms just as they are given the freedom to do what they want with their own money."
