Savers withdrawing money from their pension pots could face a maximum early exit charge, under proposals released by the Financial Conduct Authority (FCA).
Since April 2015, those over 55 have been able to withdraw as much as they like from their pension pots, subject only to income tax. In January, Chancellor George Osborne announced that the FCA would be tasked with preventing excessive early exit charges levied by firms for those eligible to access the new pension freedoms, and the proposal of a cap is part of that remit.
The FCA has suggested that, for existing contract-based personal pensions, including workplace personal pensions, exit charges will be capped at 1% of the value of a member’s pot. Firms will not be able to apply any exit charge for personal pension contracts entered into after the proposed new rules come into force.
Christopher Woolard, director of strategy and competition at the FCA, said: ‘Together with the ban on exit fees in future contracts, we are proposing a 1% cap on exit charges in existing contracts to ensure people can access their pension pots without being deterred by charges. This is an important step so people feel able to access their pension savings should they wish to.’
Consumer group Which? welcomed the announcement. Alex Neill, director of policy and campaigns, said: ‘It’s right that the FCA is bringing in this cap on pension exit fees. This announcement is a good first step, and the regulator must now turn its attention to other charges people face when trying to make the most of the pension freedoms.’
The FCA will now consult on the level of the exit cap. The new rules should be in place by March 2017, after the Bank of England and Financial Services Act becomes law.
Separately, the Department for Work and Pensions (DWP) has announced its consultation on capping early exit charges for members of occupational pension schemes, which will be available later and run for a period of 12 weeks.