Chancellor George Osborne has launched a consultation into exit penalties and transfers to providers offering pension flexibilities.
Speaking at Prime Minister’s Questions today, Osborne said that the Treasury will consult to ensure that people are not charged excessive early exit penalties and are treated fairly when moving their pension to a company that offers them flexible options to access their savings. The move follows a warning from the chancellor yesterday that providers need to ‘up their game’ in delivering flexibilities.
The government says it wants all individuals to be able to transfer their pension ‘easily, within a reasonable timeframe and at reasonable cost, so that they can take full advantage of the new flexibilities’.
The consultation, due to launch next month, will look at options to address any excessive early exit penalties. These include the option of imposing a legislative cap on these charges for those aged 55 or over and options for making the process for transferring pensions from one scheme to another quicker and smoother.
Economic secretary to the Treasury Harriett Baldwin has also written to FCA chief executive Martin Wheatley confirming that the regulator will, in tandem with the government’s consultation, gather information from providers to understand the scale of the problems facing individuals who want to transfer to a different pension provider.
The ABI says nearly nine in ten customers eligible for the pension freedoms will not face early exit fees. It says exit fees where customers leave the scheme early, which exist on older schemes, are not a penalty but reflects expenses already paid by the provider, such as commission, in setting up the policy.
Speaking in the Commons today Osborne said: “There are clearly concerns that some companies are not doing their part to make those freedoms available, and we are investigating how to remove barriers.
“We are considering now a cap on charges and have asked the FCA to investigate. People who have worked hard and saved hard deserve a better deal”
Association of British Insurers director general Huw Evans says: “With so many issues unresolved due to its rushed timetable, it is not surprising that the Government has had to announce this consultation today. 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.”