A consultation to ensure pension providers are adhering to new pension freedom rules will be launched next month, the government has announced.
The news follows concerns voiced by industry experts who say that some pension providers are cashing in on the new pension freedom rules by charging excessive early exit fees to members wishing to take advantage of the new freedoms.
Among the issues expected to be reviewed by the consultation, plans to cap pension freedom charges will be considered, whilst action will be taken to ensure that members are being treated fairly when switching to pension providers, especially to ones which offer more flexible options.
Any early exit charges deemed excessive by the consultation will be met with a cap on the charges for those over 55. The consultation will also review how to make the entire process of switching pension providers smoother and easier for members.
Since the implementation of the new flexible rules in April 2015, over 60,000 people have made use of the new reforms by either withdrawing their pension as cash, converting it into an annuity or transferring funds into drawdown.
Speaking in response to the consultation announcement, Chancellor George Osborne commented: “The pensions freedom we introduced in April deliver a fundamental principle that people who have worked hard and saved hard all their lives should be trusted with their money, 60,000 have already accessed their pension savings. But there are clearly concerns that some [pension providers] are not doing their part to make those freedoms available. We are investigating how to remove barriers, are now considering a cap on charges, and are asking the FCA to investigate so people who have worked hard and saved hard deserve a better deal.”
Sarah Hamilton, Senior Pensions Consultant at Aon Employee Benefits said: “Clearly, members need to be protected from excessive charges when taking benefits. Easements to the transfer process are welcomed, however protection for members against making ill-formed choices and being open to pension scams need to be at the heart of any easements.” She added, “However, many providers are already overburdened with trying to react to the fundamental changes which came in from April, especially due to the speed at which they were introduced. So it’s hoped that the changes that come out of this review will take these issues into account.”
The Financial Conduct Authority (FCA) will be working in conjunction with the Treasury – the department preparing the consultation - to gather information from pension providers in order to assess the situation.
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