Withdrawing money from your pension or transferring it to a new scheme could soon cost hundreds of pounds less, after the Government today announced plans to ban "excessive" early exit fees.

Chancellor George Osborne has outlined plans to place a duty on the Financial Conduct Authority (FCA) to cap hefty charges for those using the new 'pension freedoms'.

Launched in April 2015, the pension freedoms give savers aged 55 and over more flexibility to use their pension pot how they wish, rather than being required to buy an income called an annuity.

But while around 400,000 pension pots have so far been accessed under the new freedoms, some have had to pay sky-high charges in order to move or withdraw their money.

Speaking in the House of Commons, Osborne said: "The pension freedoms we’ve introduced have been widely welcomed, but we know nearly 700,000 people who are eligible face some sort of early exit charge.

"The Government isn’t prepared to stand by and see people either ripped off or blocked from accessing their own money."

What are early exit penalties?

Early exit fees are incurred when a saver decides to withdraw or transfer out of a pension scheme, or to access the fund early.

There's no specific definition of how much should be charged – and currently there's no set limit either. Normally charges range from 5%-15% of the total amount being withdrawn, but there have been cases where exit fees have been almost 50%.

FCA data released last year showed 670,000 people aged 55 or over potentially faced an early exit charge. Of these, 358,000 faced charges between 0% and 2%, 165,000 faced charges between 2% and 5%, 81,000 faced charges between 5% and 10%, and 66,000 faced charges above 10%.

The FCA also found that while the majority of customers don't end up paying early exit charges, 26,000 savers under-55 and 13,000 over-55 paid more than £5,000 in early exit fees.

What's changing?

While the Chancellor made a clear pledge today to cap exit fees, there's still very little detail on how or when this will be implemented.

In July 2015, the Government launched a consultation looking at pension transfers and early exit charges. The formal response to this will soon be published looking at how to make the process for transferring and exiting pensions simpler, but there's no firm date as yet.

Who will this affect?

Anyone with a pension who wants to take advantage of the new pension freedoms could potentially benefit from a cap on fees – but the Pensions and Lifetime Savings Association says it's likely those who will benefit most will be those with a contract-based pension scheme. These were particularly popular in the 1980s and 1990s and tend to be the pensions with the steepest exit fees.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, says exit fees can typically run to hundreds or even thousands of pounds.

He says: “Investors who are looking to take advantage of the freedoms but who are currently facing exit penalties may want to hold back now in order to benefit from the new ban, though it is unclear at this stage how rapidly the change can be introduced.”

Additional reporting by the Press Association.