About 160,000 people have had to pay fees to access their pensions since new freedoms were introduced, with some seeing more than 10% of their retirement pot swallowed up by charges, according to a report.
The study by Citizens Advice said that those with smaller pots were the group hit the hardest.
Last month, the Financial Conduct Authority (FCA) announced that exit charges for people cashing in their personal and stakeholder pensions are likely to be capped at 1% of the value of a member’s pot.
These early exit fees are imposed on someone when they transfer or take their benefits over the age of 55 but before retirement age. Evidence emerged that some companies were imposing punitive charges on over-55s trying to take advantage of the freedoms that took effect in April 2015, and which abolished the requirement to convert a pension pot into an annuity, leaving people free to do whatever they like with their retirement cash.
Citizens Advice said it believed a 1% cap was too high, and added there should be a standard £50 exit charge across all types of pensions to cover providers’ administration costs.
The charity said its research had shown that, while most consumers had been able to access their pension pots for free, 41% of those who wanted to do so had been charged a fee. Those who have faced fees since April 2015 reported paying an average of £1,577 in total.
Citizens Advice said those with the smallest pots were paying the highest fees, both in absolute terms and proportionally. Those with pots of £20,000 or less who had paid a fee had handed over an average of £1,966, which was more than those with medium or large pots, and £389 more than the overall average.
“At best, those who have paid fees on their sub-£20,000 pots have lost an average of 10% of their pots to charges,” said the report. This assumed they all had £20,000 in their pots, but it is likely that many would have had less than this, and so would have lost more than 10% as a result.
Gillian Guy, chief executive of Citizens Advice, said: “The threat of excessive charges can put people off making the right pension choices for them. A standard £50 exit fee across all types of pensions would mean consumers can make the most of the pension freedoms.”
