Following the introduction of pension freedoms in April last year, all savers are able to access their pension pots from the age of 55. However, in some cases, excessive early exit penalties are making the costs prohibitive.
Figures released by the Financial Conduct Authority show that the vast majority of pension savers (83.6%) will not have to pay an exit penalty on their pension. However, 9.2% face a charge of up to £250, 4.6% are paying between £250 and £1,000 and a very unlucky 2.6% are facing charges up to £5,000.
George Osborne told the Commons that 700,000 people faced some form of charge and said, “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.”
The FCA will oversee a new cap on early exit charges.
Mr Osborne said: “We’re determined that people who’ve done the right thing , saved responsibly, are able to access their pensions fairly”.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, was among those who welcomed the change. “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,” he said.
However, it is unclear at this stage how rapidly the change can be introduced and whether it will be in time for the new financial year.