It will also analyse how the process for transferring pensions from one scheme to another could be made quicker and more easy.
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The Treasury say that both the Chancellor George, and Work and Pensions head honcho Iain Duncan-Smith have “raised concerns” that a few insurance companies are “failing to play their part in making pension freedoms available to savers”.
New rules that took effect in April abolish the requirement to convert a pension pot into an annuity – a product that provides an income for life – and leave people free to do whatever they like with their retirement cash.
Mr Osborne said in June that he was considering a cap on excess charges amid fears they were deterring some people from taking advantage of the changes and promised the consultation which is now being launched.
According to the Telegraph, Cameron is expected to accuse providers of exploiting the government’s “once in a generation” pension reforms by trying to create a “new way of charging people”.
The consultation covers options to address excessive early exit penalties, including a proposal to impose a legislative cap on these charges for over-55s.
A spokeswoman for the Association of British Insurers said: “No pensions sold on the market today have early exit fees and almost nine out of 10 people making use of the pension freedoms will not face an early exit fee”.
The move came after it emerged a number of providers were failing to offer savers full access to the pension freedoms and were levying exit fees on consumers looking to switch to a more flexible scheme.
“The barriers to pension freedoms need to be removed so that investors who have shopped around can move their money quickly and cheaply, without having to pay unreasonable exit penalties”.
“While the exact amount of money required to fund a comfortable retirement will always be subject to the vagaries of life expectancy, what is clear is that pensioners will need every penny that they are entitled to if we, as a country, are to avoid widespread penury within our pensioner community in future”.
The consultation will run for 12 weeks and the Government will set out its response in the autumn.
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“Providers will engage constructively with this consultation so all the relevant facts and issues can be fully understood”, he said. It means more than 300,000 people a year with defined contribution, also known as money purchase, pensions can access them once they turn 55.
