Treasury to cap early-exit charges for accessing pension pot

George Osborne has announced measures to prevent excessive charges levelled by pensions providers on customers who make an early exit from their pension under the new pension freedoms.

The Treasury announced that the Chancellor intends to introduce legislation that will give the Financial Conduct Authority (FCA) the power to set a cap on the level of early exit charges.

A statement from the government department said the FCA will run full consultations in due course.

FCA research published last year found that, while more than 80% of providers issued no exit charges, more than 1% of customers were hitting savers with charges of at least 10%, with some exit charges topping 20% and some even above 40%.

As a result, the Treasury had originally proposed one of three options: a voluntary cap on exit charges, a flexible cap in certain circumstances, or a cap on all early exit fees.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said he welcomed the announcement, as 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.”

The Association of British Insurers stressed the FCA's research that showed more than eight out of ten customers do not have to pay early exit charges to access their pensions, arguing that most of the higher charges were from "decades before" the pensions freedom reforms.