New “pension freedoms” have now been in place for more than two years.
They were introduced by the Government in April 2015 and were designed to give much more flexibility to savers aged 55 or over (but before retirement age) about how they used their pension pots.
These reforms included giving people access to their entire pension pot from age 55 onwards, removing the need to buy an annuity to provide income until you die and gave access to invest-and-drawdown schemes previously restricted to wealthier savers.
The new freedoms have generally been judged a success. However, it soon became clear that some pension providers were imposing heavy “exit” charges on people wanting to cash in their personal pensions, sometimes running into many thousands of pounds.
A study by the Financial Conduct Authority suggested that 670,000 people nationwide aged 55 or over could face early exit charges. Of these, 65,000 faced charges of two per cent to five per cent, 81,000 faced charges of five per cent to 10 per cent and 66,000 faced whopping charges of more than ten per cent
So, the Government announced it would ensure workers were not “unfairly penalised” for accessing their own cash and said it would introduce a cap on early exit charges.
That cap came into force on March 31, 2017. This has set a maximum charge of one per cent of the value of the pension plan at the date the benefits are paid out or transferred into another pension.
This does not mean that everyone accessing their pension pot early will have to pay a full one per cent charge. Schemes that currently have early exit charges set at less than one per cent cannot now increase them.
Additionally, new contracts for pensions taken out from April onwards will not be allowed to charge any exit fee at all for early withdrawals.
So, if you are thinking of cashing in your pension pot early, you may want to speak to one of Chadney Bulgin’s specialist advisers to ensure you get all the facts you need to make a proper considered decision. Call us on 01243 532161 or email firstname.lastname@example.org to discuss how we can help you.