The government has announced that the exit fees paid by people to access their company pension pots is to be capped at 1%. These early exit charges have long been a bone of contention in the industry and this cap could make a big difference to many workers, as some company pension schemes charge exit fees of up to 24%. These sort of fees obviously take a huge amount out of people's pension pot which is why the 1% cap has been warmly welcomed by those with company pensions. Thankfully, the vast majority of schemes do not have an exit charge at all.
Richard Harrington, the government's pension minister said:
"We are restoring fairness and creating a level playing field in a system that has favoured the interests of providers over consumers for too long. This new cap will protect people's savings from excessive charges, so more of their money will go towards the comfortable retirement they have saved for."
The exit fee proposal is the result of work started by former pensions minister, Baroness Ros Altmann, and Economic Secretary to the Treasury, Harriett Baldwin, who suggested this move in a white paper back in May. Baroness Ros Altmann said at the time:
"These changes are about giving everyone who has worked and saved hard for their retirement a fair deal by removing the final barriers to the pension freedoms. I encourage the industry and all those with an interest to contribute to this debate. I urge people to continue to work hard, plan and save for their future, and we will continue to reform the pension system so that it delivers for them."
Harriett Baldwin said:
"The government are delivering the most far-reaching changes to pensions in a generation. Over 230,000 people took advantage of our pensions freedoms in the first year by accessing £4.3 billion flexibly from their pension pots. Today's consultation signals our continued commitment to ensuring that pensions freedoms work fairly for people in practice and that hard-working individuals who have taken out occupational schemes are not disadvantaged."
This latest announcement from the Department of Work and Pensions has been a welcome decision for many but it must still be remembered by people that 1% could still be a chunky sum of money for some people so financial advice from an appropriate person or organisation should always be sought.