Pension freedom rules announced in April 2015 included provisions for a government cap of the exit penalty at one per cent, overruling the small print in many policies established in the 80s and 90s which stated that considerable portions of a pension’s value could be wiped out in fees should an investor choose to withdraw before a specific age – normally either 55 or 60.
However, the cap – which came into force on 31 March – only applies to people already aged 55 or over, raising fears that the imposing of fees will continue for those below the age threshold.
In a case reported by Telegraph Money, a customer was hit with a £14,000 penalty charge to move savings of £307,000 – a fee that amounts to 4.5 per cent – as compared to the £3,070 he would have been charged were the 1 per cent cap applicable.
However, some pension providers have voluntarily capped exit charges for all customers, while Scottish Widows has scrapped exit fees entirely, across its entire customer base.
While the pension freedoms introduced in 2015 allow anyone over the age of 55 to withdraw their entire pension savings as cash, make ad hoc withdrawals and buy an annuity, many older contracts do not offer these options, forcing customers to transfer if they wish to exploit those freedoms.
Pete Glancy, head of industry development at Scottish Widows explains: “The pensions industry has changed in recent years to give savers more freedom and choice in how to use their savings. Exit fees go against the spirit of this.
“We believe it’s only fair that people who have saved responsibly and diligently are allowed to access or move their funds without being charged to do so, and that’s why we’ve removed these fees altogether.”