The government has announced plans to cap the “rip-off” exit charges levied on savers who opt to cash in their pension pots as a result of the pension freedoms introduced in April last year.



George Osborne said on Tuesday that the government will place a duty on the financial regulator to cap “prohibitive” exit fees, which can run into thousands of pounds and stop consumers from accessing their funds early.

“The government isn’t prepared to stand by and see people either ripped off or blocked from accessing their own money by excessive charges,” he said. “We’ve listened to the concerns and the newspaper campaigns that have been run and today we’re announcing that we will change the law.”

Exit charges are typically levied on pension policies, and are triggered when the plan is cashed in before maturity. Under the changes, the Financial Conduct Authority will consult on the exact level of the cap to be imposed on pension providers.



The government said that data collected through its consultation showed that nearly 700,000, or 16%, of customers in “contract-based” pension schemes who are able to access their pension flexibly, could face some sort of early exit charge.

Tom McPhail, the head of retirement policy at financial advisers Hargreaves Lansdown, welcomed the announcement. “This kind of financial bondage has no place in the 21st century,” he said. “Investors who are looking to take advantage of the freedoms but who are currently facing exit penalties, may want to hold back now in order to benefit from the new ban, though it is unclear at this stage how rapidly the change can be introduced.”

Andy Bell, the chief executive at online investment firm AJ Bell, said that around 45% of financial advisers have clients who have been prevented from accessing the new pension freedoms due to exit charges.



“The whole point of pension freedoms was to give people flexibility and choice. If you can’t offer your customers that, why should you be allowed to charge them an early encashment penalty?” he said.

The Association of British Insurers, which represents pension providers, said the exit fees were put in place decades before the pensions freedoms were introduced.

“We will engage closely with the FCA and Treasury on this issue going forward,” it added.