The Financial Conduct Authority will apply a charge cap to early exit charges in relation to contract-based schemes – intended to be in place by March 2017, and The Pensions Regulator (TPR) will work alongside the FCA to design the level of the cap, which will be extended to cover trust-based schemes.
TPR will introduce new guidance for scheme trustees to help ensure transfers are processed promptly and accurately.
Poor performers
Nathan Long, head of pension research at Hargreaves Lansdown, welcomed the government’s tougher stance on transfer times, described as “a thorn in the side of the retirees for years”.
He added: “Among the worst offenders, trust-based company pension schemes will be forced into reporting their transfer performance. Transfers from these schemes currently take significantly longer and have to improve to give people a smoother, less stressful passage to retirement.”
The consultation found trust-based schemes were often slower and less efficient than contract-based schemes – averaging 16 days for to transfer a contract-based plan versus 39 days for trust-based pensions.
The Treasury said: “The government will make trust-based pension schemes more transparent and accountable for their performance in processing transfers through a new reporting regime; and Pension Wise will develop additional guidance on pension transfers in order to support individuals through the transfer process.”
Launched in July 2015, the consultation received more than 74 responses from across industry and consumer groups.
Since pension freedoms took effect on 6 April 2015, more than £3.5bn ($5.1bn, €4.5bn) has been withdrawn from pension funds – in around 400,000 transactions.
Next steps
The Treasury added: “The government has concluded that there are significant numbers of individuals currently eligible to access their pensions flexibly who find themselves facing early exit charges which are at a level that present a real barrier to their accessing their pension savings in this way.”
Hargreaves Lansdown flagged five “next steps” for clients: collate all up-to-statements; review any early exit penalties; consider – or reconsider – a retirement strategy; consolidate all pensions that don’t have exit fees; seek advice if needed.
Long added: “Capping early exit charges will unshackle thousands, allowing them to enjoy the pension freedoms in all their glory. Research has shown that would be retirees have already had to change their plans because of punitive penalties.”
