UK Treasury plans action on 'excessive' pension exit fees for those seeking flexible access to savings

The government will act to remove any "unjustified" barriers preventing people from accessing their pensions under the new, more flexible regime that came into force in April. It will publish some options for consultation next month, including whether to introduce a cap on the fees that schemes could charge members aged over 55 for winding up their policies early or transferring to a scheme offering the full range of flexible pension options.

Pensions expert Stephen Scholefield of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement was further evidence of chancellor George Osborne's "desire to drive through the freedom agenda".

"Tackling exit fees further positions the chancellor as an unlikely consumer champion," he said.

"But to have real success, the government and financial regulators will need to create a safe-harbour environment in which providers can process transfers efficiently while savers don't live to regret their decisions. Otherwise, ambulance-chasers will be joining car retailers in looking to profit from those who cash out their pension savings," he said.

Changes to pension tax rules which came into force on 6 April mean that members of DC pension schemes can now access their savings in any way that they wish once they turn 55 without facing heavy tax penalties or necessarily having to buy an annuity. The government also intends to establish a 'secondary' market for annuity sales which would allow existing pensioners to take advantage of the same flexibilities.

Savers are guaranteed the right to free and impartial guidance at the point of retirement through the government-backed Pension Wise service, although this does not provide them with regulated financial advice. UK financial regulator the Financial Conduct Authority (FCA) has begun regulating the transfer of 'safeguarded' pension benefits of over £30,000 from a defined benefit (DB) scheme not yet in payment to a DC scheme in order to take advantage of the new freedoms as a consumer protection measure.

Speaking in the House of Commons this week, Osborne said that over 60,000 savers had taken advantage of the new regime since April, withdrawing over £1 billion in total over that period. The figure suggests that savers have been withdrawing comparatively small amounts, with the average withdrawal coming in at just under £17,000.

"Conservative members believe that we should trust people who have worked hard and saved hard with those savings in retirement," said Osborne.

"These unprecedented pension freedoms have been widely welcomed … [The uptake figures are] a sign that this is a real success, but we have to make sure that people get the best advice, that the market responds and that companies up their game in helping customers make use of these freedoms," he said.

Harriett Baldwin, the economic secretary to the Treasury, has written to the FCA's Martin Wheatley to confirm that the regulator will gather information from providers during the consultation process to help the government understand the extent of the problems facing individuals that want to transfer to a different pension provider, the government has announced.

Responding to the government's announcement, industry body the Association of British Insurers (ABI) said that nearly 90% of customers eligible for the pension freedoms would not face any early exit fees.

"Where one is charged it is not a penalty for leaving early, but to cover the costs of setting up the pension, particularly commission," said ABI director-general Huw Evans.