Question to the HM Treasury:

To ask Her Majesty's Government what are the risks to those seeking early redemption of Pension Funds from the lack of competition in the market for pension advice.

The Government recognises the importance of people being able to access affordable financial advice, especially when making decisions about their life savings. This is why the Treasury and the Financial Conduct Authority (FCA) launched the Financial Advice Market Review (FAMR) in August 2015, to explore how the financial advice market could work better for consumers.

FAMR made 28 recommendations, all of which the Treasury and FCA have either completed or are on track to complete. The Government believes that taken together, the measures will improve the market for pension advice and make advice more accessible and affordable.

Financial advice is particularly important for people seeking early withdrawal of their pension savings as the Government imposes a charge on early withdrawals, which can be from 40% to 70% depending on the circumstances. For the majority of savers, pension contributions are tax-free and this pensions tax relief is one of the most expensive reliefs in the personal tax system. The charge on early withdrawals is therefore in place so the Government can recoup this tax relief, to ensure there is an incentive to save for the long-term.

To further support people who wish to make decisions about their defined contribution pension, the government has set up PensionWise, which provides free and impartial guidance.