Two years after the start of pension freedoms, unwary retirement savers are still losing money to financial pitfalls.
Finance professionals are warning that some savers are facing exit fees of tens of thousands of pounds when moving a pension despite the government imposing a charging cap on providers.
The pension firms get around the cap by only charging retirement savers under 55 years old when they want to switch their pots to a rival firm.
The cap limits exit charges to 1% of fund value for anyone over 55 years old.
One saver under 55 was asked to pay £14,000 when moving a £307,000 pension fund – an exit charge of around 4.5%. At 55 or over, the charge would have been set at no more than £3,070.
Exit fees against spirit of law
Pete Glancy, head of industry development at Scottish Widows explains: “The pensions industry has changed in recent years to give savers more freedom and choice in how to use their savings. Exit fees go against the spirit of this.
“We believe it’s only fair that people who have saved responsibly and diligently can access or move their funds without being charged to do so, and that’s why we’ve removed these fees altogether.”
Meanwhile, another pension provider, Royal London, claims at least 800,000 retirement savers are paying too much tax on benefits because HM Revenue and Customs (HMRC) has mixed up their tax codes.
HMRC disagrees with the company.
Free guide to work out tax codings
Royal London explained even if someone’s income for two or more streams of income is less than the £11,500 personal allowance for this year, the tax authority assumes one stream uses the full allowance and issues a code instructing the other source to deduct income tax.
“The overwhelming majority of tax codes are accurate, based on information provided to us. No one whose income is below the personal allowance pays tax,” said HMRC.
To check if a personal tax code is correct, call HMRC on 0300 200 3300 or find out about your coding on the Government Gateway’s online service for HMRC.
Royal London has published a guide to help people work out their tax codes, available for free online.