The Treasury has tasked the Financial Conduct Authority (FCA) with reducing what pensions service providers can charge investors.
Chancellor George Osbourne told the House of Commons “The pension freedoms we’ve introduced have been widely welcomed, but we know that nearly 700,000 people who are eligible face some sort of early exit charge.”
“The government isn’t prepared to stand by and see people either ripped off or blocked from accessing their own money by excessive charges.”
Data collected by the FCA, an independent body, has highlighted these early pension exit penalties. Due to the level of the charges, which for a minority of pensions holders could run into the thousands, the Government believes that the benefit of the recent pensions freedom legislation is being negated.
The FCA released the following information in late 2015:
The FCA will consult its full recommendations in due course.
What are the new Pensions Freedoms?
The ‘freedom and choice’ pension legislation was first introduced by the Government in the 2014 budget. This legislation has given employees a wider choice when it comes to how and when they access their pensions.
Since April 2015 employees have been able to:
- Take money directly from their pension pot without having to buy an annuity or put the money into drawdown.
- Take one or more of these payments on a regular or irregular basis.
- Use some or all of the funds to buy an annuity.
- Put the funds into a flexi-access drawdown.
- Purchase a short-term annuity.
Pensions holders can no longer take out a capped drawdown arrangement; however, anyone in a capped drawdown arrangement can continue to use it.