Chancellor Pledges To Change Law And Remove Exit Penalties From Pensions

But pension experts say move would be unrealistic


Martin Jenkins, Partner | +44 (0)207 421 3886

Pension experts at Irwin Mitchell believe the Government’s proposals to remove exit penalties on pension plans are unworkable.

Chancellor George Osborne has pledged to change the law and ban high charges and exit penalties for people using new freedom to access their pension pots early.

Although Government sources have reported the proposed changes could take two years to have effect, the move could save some people thousands of pounds. 

The new freedoms began last April and ended the requirement to use pension savings to buy an annuity, giving the over-55s more flexibility over how they spend their savings.

Latest figures suggest almost 400,000 people have accessed their pensions in this way, releasing £4.7billion but campaigners claim many have been put off by the exorbitant fees levied by firms.

The Treasury said over half a million savers face exit charges of up to five per cent of their pensions, a further 81,000 face charges of five to 10 per cent and 66,000 face even higher penalties.

The precise level of the fee cap will be determined following a consultation by the Financial Conduct Authority.

Expert Opinion
There are many thousands of pension policies out there with restrictions, penalties and bonus entitlements which don’t work very well in a flexible access environment. There should be no surprise about this as each of them were put in place before the new flexibility was even thought of.

Government is now saying it wants to free-up these restrictions by legislation but this is unrealistic. It will be impossible to draw up one piece of legislation that unpicks all sorts of varying restrictions and terms over thousands of different policies each put in place in good faith in times past. In the real world any unlocking is going to need detailed and careful negotiation with a large number of pension providers.

Trying to sweep away all restrictions on pensions will be a legal minefield and will certainly be challenged by providers. It could also be bad news for those consumers who opt for early access to their pensions and forgo valuable features such as guaranteed income in retirement.
Martin Jenkins, Partner