Crackdown on pension fees

Rip-off charges face cap after Mail campaign

MINISTERS could cap rip- off pension charges after the Mail revealed hundreds of thousands of over-55s faced excessive fees to cash in their savings.

George Osborne said yesterday he was setting up an urgent review into the fees – just 72 days after he introduced the most radical pension reforms in a century.

The Chancellor had promised that over55s would be able to use their pensions like a bank account from April rather than being forced to use the savings pot to buy an income for retirement.

But many pension providers are not offering this freedom to customers – and charge enormous fees when they try to switch to one that does.

Some savers claim they face charges of up to 40 per cent of their pension pot if they try to transfer their savings to a more flexible scheme.

Other customers even face huge fees when they switch to a more flexible scheme with the same company.

There have also been complaints that those with older policies are forced to seek financial advice costing up to £2,000 before they can have their money.

As a result, the Chancellor will begin a consultation next month and has threatened to limit how much companies can charge people to switch providers.

He said last night there were ‘clearly concerns’ and the Government would challenge firms that blocked people from using their pensions flexibly.

Mr Osborne added: ‘Two months into our new pension freedoms we’re pleased to see a lot of companies offering people flexibility. We expect more companies to follow, but are keeping a close eye on those that are lagging behind. I’m absolutely clear that the Government stands ready to tackle this.

‘The consultation is about how people can get quick, affordable and flexible access to their savings and we will make sure people get a fair deal.’

The Treasury has told the Financial Conduct Authority watchdog to gather information from providers to ‘understand the scale of the problems facing individuals who want to transfer to a different pension provider’.

The news comes a week after the Mail launched its Play Fair On Pensions campaign, calling for providers to lift onerous restrictions that stop people cashing in their hard-earned savings.

Industry figures reveal that more than one in ten eligible for the new pension freedoms will face early exit fees if they move their money before their contractually agreed retirement date.

Minister for Pensions Baroness Alt- mann said last night: ‘It is essential that pension savers get a fair deal – and I want to make sure that happens.

‘Some pension firms are acting positively – but “some” is not good enough. The whole industry needs to pull its weight and treat customers fairly. We stand ready to intervene – but we need to be sure we have a full picture of the problems facings customers before we act. Time is running out for the industry to start delivering for pension savers.’

While providers cannot be forced to let people withdraw their pension pots when they choose, they must allow them to move their money elsewhere. The Treasury said it wanted to make the process ‘quicker and smoother’.

The need for a consultation just two months after the reform was introduced on April 6 will embarrass the Chancellor. Critics claim it was rushed through and needed more safeguards.

Frances O’Grady, of the Trades Union Congress, said: ‘Pensions freedom is looking increasingly like a botched DIY job. The Chancellor is attempting to shave a bit off here and add a bit there just to make his flagship policy work.’

Lisa Harris, of the over-50s specialist firm Saga, said: ‘It is great to see that the Daily Mail’s campaign and continued focus on the difficulties experienced by pension savers has borne fruit.

‘A consultation will be welcomed by those who have saved hard for their retirement who, despite being promised their pension savings, have found repeated hurdles put in their way.

‘This scandal needs to be reviewed urgently so that those saving for their retirement can have the reassurance that companies are no longer able to apply hefty exit penalties to transfer companies to those wanting to access their hard-earned savings.’

Justin Modray, of independent financial adviser Candid Financial Advice, said some clients faced a ‘crazy’ 40 per cent fee to leave a pension provider that did not offer the full freedoms.

He said: ‘This review will hopefully free the thousands of customers shackled to out-of-date and hugely expensive pensions because the fees to get out of those policies are so prohibitive.’

But the Association of British Insurers said providers were ‘working flat out’ to deal with unprecedented demand created by the new regime. Spokesman Huw Evans added: ‘With so many issues unresolved due to its rushed timetable, it is not surprising the Government has had to announce this consultation.’