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.
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?