Pension 'exit' penalties cut so over-55s can withdraw cash -Dan Hyde

Telegraph campaign: Hundreds of thousands to benefit as George Osborne outlines plans for a charge cap on 'excessive' fees of up to 20 per cent

Chancellor of the Exchequer George Osborne speaks during Prime Minister's Questions in the House of Commons Photo: PA

Savers will no longer face "excessive" penalties for withdrawing money from their pensions in their fifties and sixties under plans outlined by George Osborne.

In a landmark victory for The Telegraph's pensions campaign, the Chancellor pledged to end retirement rip-offs that prevent people withdrawing money for years after they turn 55.

The intervention was made just days after this newspaper disclosed that 350,000 people aged 55-65 would have thousands of pounds removed from their pension pots if they tried to cash in before a specific "retirement date". This is typically their 65th birthday but in some cases can be as late as their 75th.

The Chancellor said the deductions, which can be as high as 20 per cent, were "unjustifiable".

A consultation will begin next month to cap "excessive" early exit fees for those who qualify to make withdrawals.

The Treasury will also investigate ways to ensure that savers can leave providers, including company schemes, which refuse to offer bank account-style access or levy high fees on withdrawals.
It is supposed to take two weeks to transfer a pension to a new provider, but new Telegraph research suggests many will face delays and mistakes, such as money going "missing", that can take up to a year to resolve.
A "quicker and smoother" transfer system could be created so people can obtain a better deal "easily, within a reasonable time frame and at reasonable cost", the Treasury said.

Speaking at Prime Minister's Questions, where he was covering for David Cameron, Mr Osborne said: "The pension freedoms we introduced in April deliver a fundamental Conservative principle: that people who have worked hard and saved hard all their lives should be trusted with their own money.
"But there are clearly concerns that some companies are not doing their part to make those freedoms available.
"We are investigating how to remove barriers and we are considering now a cap on charges."
Tens of thousands of people have made requests to access their money since Mr Osborne loosened the restrictions on how retirement savings can be used.
New rules on April 6 ended the need for savers to turn their pensions into a lifetime "annuity" income. The over-55s were told they would be able to take out as much of their money as often as they liked.
But a series of disclosures by The Telegraph this month have shown how millions of people have found accessing their retirement funds more difficult than the Government had advertised.
As the first details were uncovered, this newspaper called for the most egregious rip-offs and obstacles to be outlawed.
The "Make Pension Freedoms Work" campaign stated: "Exit penalties, even where they have been written into old-style pension plans, should be scrapped for every saver beyond the age of 55."
Mr Osborne's intervention followed an internal government inquiry to curb the rip-offs. He has also asked the Financial Conduct Authority, the City regulator, to gather information from providers to "understand the scale of the problems".
Most savers whose policies have exit penalties were sold pensions by doorstep salesmen in the Seventies, Eighties and Nineties. The fees, which steadily fall as the customer nears their named retirement date, were designed to ensure the company recouped the cost of the commissions handed to salesmen.
Industry sources said some charges were as high as 20 per cent for the over-55s. Many of those who are old enough to use the new freedoms, however, face smaller charges of around 1 per cent to 5 per cent. In private, industry executives admit that levying such small charges seems "unnecessary".
Policies sold after the turn of the Millennium rarely included early exit penalties as they were deemed to tie people unfairly into lifetime contract.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: "It is not acceptable to charge punitive exit penalties or to insist that investors pay for a financial adviser."
Unwinding exit penalties will help savers but hit insurance companies, which will have to write off the annual charges they expected to receive. Lawyers said insurers were likely to fight the legislation in the consultation next month.
Stephen Scholefield, a pensions partner at law firm Pinsent Masons, said the Chancellor could win support if he promised a "safe-harbour environment" in which providers could process transfers efficiently and savers "don't live to regret their decisions".
Moving to a new pension provider can be a lengthy process because of the amount of paperwork involved. One chief executive of a FTSE 100 insurance company said his firm was struggling to process requests from its own customers, let alone those wanting to transfer in from less flexible companies. As a result, there could be "significant delays" for some people, particularly those transferring older plans.
Huw Evans, director general of the Association of British Insurers, the trade body, said the "vast majority" of customers would not face exit fees.
"We reject any suggestions that the industry is putting up unnecessary obstacles," he said.

Culled from Telegraph