The government has launched a consultation on early exit charges surrounding the pension freedoms that came into effect in April.
The consultation will examine whether exit charges should be capped for those aged over 55 years that are planning to withdraw money from their pension pots.
It will also look at how greater clarity can be provided around the circumstances in which someone should seek financial advice, and investigate how the process of transferring between pension schemes can be improved.
The consultation will be open for 12 weeks and will be accompanied by an online survey. A response will be published in the autumn.
Margaret Snowdon, director at JLT Employee Benefits, said: “It was with great fanfare that the Chancellor announced the freedom of choice reforms last year, but the road to implementation has been riddled with hurdles.
“Although those over 55 can now legally access their pensions as a lump sum, and some 85,000 have already done so, the penalty fees of as much as 20% will have seriously dented many pots and undoubtedly have prevented many more from taking advantage of the reforms.
“While the exact amount of money required to fund a comfortable retirement will always be subject to the vagaries of life expectancy, what is clear is that pensioners will need every penny that they are entitled to if we, as a country, are to avoid widespread penury within our pensioner community in future.
”Having said that, there are certain administrative and other costs that do need to be considered and a cap on fees of 2.5% would be a good starting point towards a fair and effective system. We welcome the government’s consultation.”
Richard Lloyd, executive director at Which?, added: “If the pension reforms are to be a genuine success, 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.
”The government should also consider what other reforms are needed to further protect savers, including a charge cap on default drawdown products.”