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Pension exit fees under scrutiny

Cash

“Excessive” early exit penalties handed to people wishing to withdraw money from their pension pot could be capped.

Chancellor George Osborne said that the Treasury would investigate fees as part of a consultation starting next month.

The consultation will look into the speed and ease of transferring to a new provider by those wishing to make use of new pension rules.

Changes introduced in April allow those aged 55 and over to withdraw cash from their pension pot.

Not all pension companies are allowing partial cash withdrawals from pension savings.

This has led some people to consider switching schemes. This process, including the fees and ease of switching, will now face scrutiny.

“There are clearly concerns that some companies are not doing their part to make those freedoms available,” said Mr Osborne, while standing in for David Cameron at Prime Minister’s Questions.

“We are investigating how to remove barriers and we are considering now a cap on charges.

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However, the comments have been rebuffed by an industry trade body.

“We agree that further clarity is needed and have been calling for it for some time. But we reject any suggestions that the industry is putting up unnecessary obstacles to hinder customers exercising their pension options,” said Huw Evans, director general of the Association of British Insurers (ABI).

The ABI said that nearly nine in 10 customers eligible for withdrawing cash from their pension pot would not face early exit fees.

Fees, when they were charged, reflected expenses already paid by the provider in setting up the policy. This would normally be paid back by the saver if they had stayed in the scheme to their retirement date as originally intended.

On Tuesday, the chancellor said that about 60,000 people had used new pension rules, with more than £1bn transferred out of pensions since April.

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