Millions of retirees may have to rethink their pension plans when they realise their pension company could charge them up to 20% of their pot for accessing their nest egg.
From April 2015, pension savers over the age of 55 who have a defined contribution workplace pension can access their pension pots as they wish, rather than having to buy an annuity or drawdown product.
Whilst many will indeed be tempted by being able to get their hands on large sums of money rather than buy an annuity which will guarantee them an income for life, many will be left reeling when they find out how much their pension provider will charge them for the privilege.
Financial advisors are urging savers to go through their paperwork with a fine tooth comb, checking the small print for penalty charges that may occur if they choice to withdraw their pensions, with some companies charging as much as 20%.
Exit penalties are particularly prevalent on pension products sold in the 80s and 90s, with most of them being on defined contribution workplace pension along with private pensions for the self-employed.
The clauses were usually drawn up to deter savers from switching to a rival insurance companies to secure themselves a better pension deal further down the line.
Not only do savers need to be aware of the tax implications of accessing their pensions instead of buying an annuity, they also now need to be aware of how much of their pot it will cost them to do so.
Many insurance companies will also charge hefty fees for taking your pension before the retirement date logged in your policy documents, with most documents stating retirement ages of 60 or 65, and some as high as 70, leaving many who were planning to retire early because of the new pension freedom changes having to rethink their plans.
Whilst charges may vary hugely between companies and differing policies, charges start at as little as 2-3% but can go up to 20% on older policies which were sold before the insurance companies were fully computerised.
The exit charges will be even more of a blow to those who hold multiple pension policies because they have changed companies several times over their careers as potentially each pot will have an exit fee attached to it.