/ Money

The price of pension freedom

Pension fee

If you’ve tried to release your pension early, then you may have come across an unwelcome early exit fee. Well, the Government has confirmed a cap on excessive early exit fees for pension savers. So is this good news for you?

When the Government announced that it would let those aged over 55 access their hard earned pension savings with a bit more flexibility, it was a move that went down pretty well.

Since April 2015, many people have duly taken advantage of the reforms. However, it’s been far from plain sailing all the way.

Soon enough, people realised that they could be stung with excessively high charges if they tried to access their pension pot early. In fact, almost 700,000 people faced some sort of early exit charge, which could be as much as 10% of their pot, or more.

As one supporter, David, told us:

I have already received a poor return by buying an annuity, and I stand to lose out even more with high exit fees and tax.

The good news

It’s not been much of a choice for those folks, like David, facing excessive charges: take advantage of the reforms at a price, or stay stuck from accessing your money as you want.

So last month, the Treasury decided that it will introduce legislation to cap early exit fees. The Chancellor, George Osborne, told the House of Commons that:

‘The Government isn’t prepared to stand by and see people either being ripped off or blocked from accessing their own money by excessive charges’

And we’ve welcomed this move – we think everyone should be able to access their pension without paying unfair or excessive penalties.

Next steps

But what will a cap look like? Well at the moment we’re waiting to find out. The Government has passed on responsibility for setting the level of the cap to the regulator, the Financial Conduct Authority (FCA).

In due course, the FCA will set out its calculations and proposals, and so we’ll be keeping a close eye on developments.

In the meantime, we’d be interested in your views and experiences. Have you faced (or paid) an early exit fee to access your pension? What do you think the charge cap should be? Or should this charge even exist at all?

Pete Parkins says:
19 February 2016

It is totally irresponsible to allow access to pension pots at 55. The assumption is that decisions will be taken responsibly . The reality is of course that many people will regard it as a quick fix for an acquisition or a debt, only to become a burden on the state later.

They won’t be a burden they will receive a state pension just the same as everyone else they will just have to learn to live more frugally if they have blown their private pension pot on a Ferrari or used it to pay off debts. It’s their money and their choice.

Wendy says:
4 March 2016

We do not have large pension pots and the cost of an advisor would be more than any extra we may get from another provider …so its left to us to decide. No one knows what the future holds and the pension pot now would be very useful, if used sensibly, to take us into our mid-sixties without having to move house which we would find too stressful and lose too much money in estate agent fees and setting up in a new home. So putting our home in good repair would see us through comfortably. An annuity wouldn’t really give us much per month and even less if I was left widowed. So taking the pot now makes sense in a way as we can do more with it and beneficial to our well being now and make life more comfortable.