David Cameron launches pensions fee review as he accuses industry of charging “rip off” exit fees
The Prime Minister has accused the pensions industry of charging “rip off” exit fees, saying the sector is taking advantage of pension reforms by creating a “new way of charging people”.
Exit fees are currently charged when savers try to get hold of their money, which could be capped as part of a further overhaul.
Read more: £1.8bn withdrawn from pension pots since new freedoms came into force in April
Since April those over 55 have been able to cash in their life pension rather than having to buy an annuity, which provides a fixed monthly income for life. However, some companies refused people the "flexibility" of using their pension like a bank account, charging fees to move to a rival firm.
The consultation will look at whether exit fees could be capped or cut by changing the law. It will also analyse how the process for transferring pensions from one scheme to another could be made quicker and more simple.
Pension reforms were the "biggest in a generation" and "offer people much greater choice on how to use their hard-earned savings", Cameron said.
The aim has always been to give people more control over their money, not to create a new way of charging people.
We want to ensure that pension providers are not using exit charges and restrictions as a barrier to switching just when the government is providing pensioners with greater freedoms.
Read more: Pensions could look more like ISAs
But the sector hit back. Patrick Connolly, a financial planner at Chase de Vere, said:
In a free market providers should have the right to decide which options and flexibilities to include in their products, but in the interests of treating customers fairly they shouldn’t then impose high penalties if their customers decide to move elsewhere.
While it is pleasing that this issue is being addressed, it is important to note that exit penalties on pensions don’t just apply to those over age 55 or those using pension freedoms. Many other people are trapped in poor value pensions and yet face high exit penalties if they want to move elsewhere