0% pension exit cap would save retirees £50m

Firms will not be able to apply any exit charge for personal pension contracts entered into after new rules come into force next year. However penalties of up to 1% will still be allowed on existing pension arrangements, including workplace personal pensions.

An investor with a £100,000 pension pot could therefore end up paying a £1,000 exit penalty for what would be "simply an administration service which would cost the pension provider no more than a few tens of pounds to process", says Hargreaves Lansdown.

It has calculated that reducing the exit penalty cap to 0% would save investors £50 million.

Hargreaves Lansdown has responded to an FCA consultation advocating for a complete ban on early exit penalties for both new and existing pension contracts.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “For the vast majority of investors, the retirement date on their pension was agreed decades ago on an entirely arbitrary basis: no one in their 20s knows whether they’ll want to access their pension at age 55, or 60 or even 70, yet they are now going to be penalised for that.

"For most people, even the state pension age will have changed between when they started saving and when they want to retire. With the introduction of pension freedoms in April 2015, there is now no longer any justification for applying these charges on investors who simply want to access their own savings.

“Any investors faced with a substantial exit penalty might be well served by delaying accessing their pension pot until next March. In the meantime, they can contact their pension provider and ask for a one-off deal to cut the penalty.”