In March 2017, the Financial Conduct Authority (FCA) will introduce a cap of 1% on fees for withdrawing money from personal pensions, including workplace pensions. Until then, however, there are real risks to savers looking to get hold of their funds, with investors whose pensions are less than £20,000 often expected to pay close to £2,000 for the pleasure.
The statistics, released by Citizen’s Advice, show some shocking realities as excessive exit fees are deeply undermining the many tax benefits offered by pension saving in the first place. The organisation states that some 670,000 savers had faced charges of up to 10% when trying to access their money.
At DPT FS we would always recommend thoroughly investigating the pros and cons of withdrawing pension funds, including a pointed analysis of potential fees. Whether you’re starting out on a pension or looking to benefit from one you’ve been paying into for many years, it’s always wisest to talk things over with a professional retirement planning advisor.
Citizens Advice points out that 7 out of 10 people do not shop around when considering pension providers at the point they wish to access their funds. The organisation is also saying that even the 1% cap doesn’t go far enough, advocating a fixed administration fee of £50 regardless of the amount withdrawn.
“More and more consumers are choosing drawdown products but our research shows they aren’t checking whether they’re getting the best deal. The government and industry need to work together to make it easier for consumers to compare drawdown products and choose the one which best meets their needs,” said Gillian Guy, the chief executive of Citizens Advice.
“The threat of excessive charges can also put people off making the right pension choices for them. A standard £50 exit fee across all types of pensions will mean consumers can make the most of the pension freedoms.”
So if you’re facing eye-watering fees to get hold of your pension funds, it might well be worth waiting until after March 2017 to take action.