Chancellor George Osborne has told the FCA to cap “excessive” pension exit fees.
Speaking in the House of Commons, Osborne said while the pension freedoms had been welcomed by savers, the Government remains concerned that roughly 700,000 people face early exit penalties if they move their savings.
Osborne 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.
“We will change the law to place a duty with the FCA to cap excessive early exit charges from pension savers. We are determined that people who have done the right thing and saved responsibly are able to access their pension savings fairly.”
The announcement follows a 2015 consultation from the Treasury on potential mechanisms for a cap, while pensions minister Baroness Ros Altmann has also been vociferous in her calls for improvement from the industry.
Speaking to the Telegraph in October 2015 Altmann said: “There are some insurers being fair, writing off some of their back book and bringing down the old legacy charges – that’s great, they get it.
“My message is – if you don’t look after your customers, then whatever Government does to get people into pensions, they are not going to stay.”
The FCA will be responsible for setting the level of the new cap, with a consultation expected shortly.
Figures from the regulator have found that 670,000 consumers aged 55 or over faced some level of early exit charge.
Of these, 358,000 faced charges of up to 2 per cent; 165,000 faced charges of between 2 per cent and 5 per cent; 81,000 faced charges between 5 per cent and 10 per cent; and 66,000 faced charges above 10 per cent.
Hargreaves Lansdown head of pensions research Tom McPhail says: “We welcome this announcement. This kind of financial bondage has no place in the 21st century.”
Association of British Insurers long term savings policy director Yvonne Braun says: “We note the announcement by the Chancellor today that he plans to introduce a new duty on the FCA to cap exit charges on pensions.
“As the FCA acknowledge, more than eight out of ten customers do not have to pay early exit charges to access their pensions. Where they do, most fees are below 5 per cent and were put in place decades before the freedom and choice reforms were introduced.
“We will engage closely with the FCA and Treasury on this issue going forward.”
An FCA spokeswoman declined to comment.