Will legacy pension savers be stuck with early encashment penalties

Published:  4 Aug at 6 PM
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In spite of government reassurances, retirees with old-style pensions may be stuck with heavy early redemption penalties if they try to access their funds next year.

The 2014 Budget promise of ‘freedom and choice for all’ may not extend to retirees on old-style pension policies with high early encashment penalties, in spite of government promises to the contrary. Last week’s confirmation that a permissive statutory override will be introduced in order to allow pension savers to access their funds after the reform date in April 2015 is unlikely to be approved by some produce providers.

Basically, those on legacy pension plans may well be excluded from the new reforms due to hefty early encashment charges. Some product providers may effectively disallow early encashment for those with old plans whilst other are expected to review their conditions in the light of the changes.

Legal and General is to conduct a reviews of its products with reference to the Budget announcements and will include pension saver plans with exit fees. A spokesperson for the insurer said it is too early to predict whether pension freedom will be given to all policyholders.

Skandia is holding back until the government announces the legal framework for the reforms, with its spokesperson stating that underlying details have not yet been provided and adding that a only small number of old-style pension plans have early encashment charges. Aviva will offer freedom to all its customers, although some may need to transfer to modern plans.

Friends Life and Aegon are the only pension plan providers at present which have decided not to remove exit charges in spite of the government reforms. Both the Friends Life spokeswoman and the Aegon representative said that customers who choose to surrender their policies will have to pay in full.
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