The UK government is looking at ways to address exit fees for those looking to access their pensions.
30 JULY 2015 | BY CINTIA CHEONG
As the Treasury launched a consultation on exit charges, a spokeswoman from Downing Street said: "Our message is clear: the industry must sort this out or we will take action to guarantee people that freedom."
Additionally, the Treasury is seeking views from the industry on how to remove barriers that may be stopping people from taking advantage of pension flexibility.
The consultation will investigate options to address "excessive charges" for early exit penalties, including a proposal to impose a cap or a reduction on these charges. It will also examine ways to make the process for transferring pensions from one scheme to another quicker and smoother and to ensure there is clarity around the circumstances in which people should seek financial advice.
The consultation follows a demand for information sent by the Financial Conduct Authority (FCA) to all pension providers seeking information about the barriers people face when they access their pensions.
Meanwhile, the Pensions Regulator (TPR) is conducting a survey on the prevalence of exit fees and charges and the transfer process in pension schemes, which will complement the FCA data. TPR expects to publish the results of this survey later in the summer.
The Downing Street spokeswoman said: "Our reforms have already proved extremely popular and are giving people real flexibility over their pensions savings for the first the time. But some people are missing out on that freedom because of expensive fees and other barriers that are blocking them from accessing their own money."
Chris Noon, partner at Hymans Robertson, said the government should also place a cap on drawdown products.
He said: "The government is right to shine the spotlight on this. Charges at retirement can wipe off a large slice of someone's savings. However, the spotlight on fees remains too narrow. We need to look more broadly at the cost of consumers accessing their savings over the whole of retirement. While an exit fee might take out 20% in one go, annual charges on drawdown products could be substantially more than this over a 20 to 30 year retirement term.
"As average pension pots grow in size, we are likely to see more people reaching for drawdown options. Putting in place a charge cap will help create a better playing field for consumers and the choices open to them."
The exit charge consultation was first announced by chancellor George Osborne in June, after he revealed more than £1bn had been transferred out as a result of the pension freedoms.
The consultation closes on 21 October and a government response will be published in the autumn.