If you are about to cash in your pension savings, then hang on a few weeks and you could save a lot of money.
True to form, money grabbing pension firms are unlikely to tell you that you could end up with more cash in your pocket if you wait until March 31, 2017 before withdrawing your savings under pension freedoms.
Instead, rip-off firms are charging retirement savers between 5% and 30% of the amount they take from their pots under pension freedom rules as an ‘early exit fee’ charged if the money is accessed before the scheme reaches maturity.
But the government is forcing the firms to slash their fees by capping these exit charges at 1% of the amount withdrawn.
Limit on exit charges
Some firms, such as LV= and Old Mutual, have shown goodwill to their customers by axing the charges or lowering them already, but too many are holding out until the last minute to make extra money from customers.
Financial giant Aegon neglected to tell one customer that they could save £20,000 in fees by waiting until April for the cash. That came to a whopping 4% on a £500,000 withdrawal.
“It’s disappointing that it appears on this occasion details of the exit charges weren’t communicated at the time,” said a spokesman.
Besides limiting early exit charges to 1%, pension contracts with fees of less than the cap cannot be increased. Providers are banned from adding the charges to new pensions after March 31.
Consumer watchdog the Financial Conduct Authority will monitor the fees.
Watchdog monitors fees
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said: “People eligible for the government’s pension reforms should feel able to access them as they wish.
“The 1% cap on early exit charges for existing pensions, and the 0% cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”
The government asked pension firms to curb early exit fees some years ago without success.
Former Chancellor George Osborne then threatened to change the law if the firms did not respond, but while a few acted, most did not, leading to the new regulations.
