More than 2.2 million pension holders could be hit with pension exit fees, according to new data released by the Financial Conduct Authority (FCA).
The regulator discovered that some 463,000 people with pension policies would be hit with a fee of £1,000 or more if they transferred their pension.
A further 800,000 pension holders would be hit with a fee of between £250 and £1,000.
The majority of people, however, wouldn’t face any charges – 84% of over-55s and 90% of those younger than 55 with a pension.
The FCA surveyed 23 pension companies to see what penalties people would face if they left their pension policies early. Its results are part of the government’s investigation into potential barriers that are preventing people accessing their pension money when they turn 55.
Which? executive director, Richard Lloyd, said: ‘The government must take action to make sure everyone who wants to take advantage of the freedoms can. People should be able to switch without being stung by excessive exit fees if their provider doesn’t offer the full flexibilities.’
Find out more: Retirement and pensions – our comprehensive guide to managing your retirement savings
People turning away from annuities
More than 200,000 retirees have accessed their pension money since the new pension freedoms came into force in April 2015, according to the findings.
Greater freedom has meant far fewer savers opting for an annuity. Of the 204,461 people freeing up their money, 35% entered some kind of drawdown contract, 6% bought an annuity and 59% have made a full or partial cash withdrawal.
Around 100,000 pots were accessed in the same period of 2013. The average time taken to transfer a pension pot was 16 days, according to the data.
What you need to do
You should always check with your pension company before you transfer your money to another scheme. Many contracts, particularly older policies, will have exit penalties. You might also have a valuable guaranteed annuity rate on your policy.
If you are unsure about your pension options you should use the government’s free Pension Wise guidance service or consider paying for financial advice if order to get a comprehensive review of your retirement options.
Whichever option you choose, you are under no obligation to take out a pension product with your current provider and should do some shopping around.
A final word – beware pension scams and make sure any offers that seem ‘too good to be true’ are genuine.
- Discover the new income options for your pension under the 2015 rules
- Find out the main reasons why you would want to transfer your pension
- Learn more about the government’s free guidance service Pension Wise