Government plans cap on pension fund withdrawal charges

The Guardian 

George Osborne announced the government’s desire to limit excessive early-exit penalties for people wanting access to their pension pots

 George Osborne standing in for David Cameron during prime minister’s questions in the House of Commons, London. Photograph: PA

The government is considering introducing a cap on the charges imposed on those who want to access their pension funds early, George Osborne has announced.

Speaking at prime minister’s questions, where he was standing in for David Cameron for the first time, the chancellor of the exchequer said the Treasury would launch a consultation next month to look at whether people were being charged excessive early-exit penalties and whether a cap could be imposed.

On 6 April this year the government removed restrictions for people who want to access their pension pots after the age of 55 and the Treasury claims that 60,000 people have already taken advantage of the new flexibility, transferring more than £1bn out of their pension pots. 

“The pensions freedoms we introduced in April deliver a fundamental Conservative principle that people who have worked hard and saved hard all their lives should be trusted with their own money,” Osborne told MPs.

“There are clearly concerns that some companies are not doing their part to make those freedoms available. We are investigating how to remove barriers and we are considering now a cap on charges. I’m asking the Financial Conduct Authority (FCA) to investigate. People who have worked hard and saved hard deserve a better deal.”

There is currently a cap on the charges that can be issued when savers pay into their pensions, but not when people take the money out.

The economic secretary to the Treasury, Harriett Baldwin, has also written to the CEO of the FCA, Martin Wheatley, asking him to gather information from pension providers to understand the difficulties experienced by individuals who want to transfer to a pension provider that offers people more flexible access to savings.

The Conservative party made their reform of the pensions system a key part of their general election offering. The decision to allow unrestricted early access to pension pots provoked warnings that people could blow their savings and become reliant on the state in later life.

Tom McPhail, head of pensions research at financial advisers Hargreaves Lansdown, warned on Tuesday that the magnitude of the change should not be underestimated. 

“This is a reform of equal magnitude to the Right to Buy council house salesrevolution of the 1980s,” he said. “In the same way that Margaret Thatcher introduced millions of people to home ownership, George Osborne is now introducing millions of people to pension ownership.”