New Government consultation aims to prevent extortionate pension freedom charges

The Treasury say that both the Chancellor George, and Work and Pensions head honcho Iain Duncan-Smith have “raised concerns” that a few insurance companies are “failing to play their part in making pension freedoms available to savers”.

The consultation will also look into other ways in which pensioners are hit by charges when accessing the freedoms.

The consultation paper confirms a U-turn set out by ministers a month ago, in the face of criticism that government reforms were presenting pension firms with the chance to rip clients off. It will also look at how the process for transferring pensions from one scheme to another could be quicker and smoother.

Yesterday’s publication of the government consultation on plans to curb or cap exit penalties from pension schemes has predictably got the industry talking about the right course for future policy.

“We want to ensure that pension providers are not using exit charges and restrictions as a barrier to switching, just when the government is providing pensioners with greater freedoms”, said David Cameron.

“However, on exit charges there does appear to be a determination to reduce or even eliminate these by legislation, if necessary, if the industry shows itself incapable of dealing with the issue itself”.

The government has launched a consultation on early exit charges surrounding the pension freedoms that came into effect in April.

The government could force pension providers to limit how much they charge customers who want to access their money under the new pension freedoms.

‘Whilst it’s great news that the government is stepping in to save unsuspecting consumer from footing a hefty bill when they cash in their pensions, it feels as though they are shutting the gate after the horse has bolted, ‘ says Hannah Maundrell, editor in chief of money.co.uk. Other customers with pensions will have already paid their own fees, either when they joined a scheme or over its lifetime.

“Our message is clear: the industry must sort this out or we will take action to guarantee people that freedom”.

The consultation will be open for 12 weeks and will be accompanied by an online survey.

“Providers will engage constructively with this consultation so all the relevant facts and issues can be fully understood”.

‘Thanks to the new flexi-access rules, 85,000 over-55s have already taken a total of £1.2 billion out of their pension pots according to reports.