Providers can’t charge more than 1 per cent to savers wishing to access pension pots early and are banned from adding exit fees to new contracts.
The Financial Conduct Authority today (15 November) announced its final rules on capping early exit charges for consumers eligible to access the government’s pension reforms from age 55.
From 31 March 2017, pension early exit charges will be capped at 1 per cent of the value of existing contract-based personal pensions.
The cap includes workplace personal pensions.
The regulator has ruled early exit charges that are currently set at less than 1 per cent may not be increased.
Firms will not be able to apply an early exit charge to personal pension contracts entered into after these rules take effect.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “People eligible for the government’s pension reforms should feel able to access them as they wish.
“The 1 per cent cap on early exit charges for existing pensions, and the 0 per cent cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”
Steve Webb, director of policy for Royal London, said it was inevitable that this exit fee cap would be coming.
He said: “The idea behind all this was the government unleashed pension freedoms and did not want people saying they could not access it because of the terms of their pension contracts.
“The message of pension freedoms was being muddied because of the presence of exit fees.”
Chris Daems, director of Cervello Financial Planning, said: "Having encountered pension pots which are uncompetitively charged but with restrictive exit penalties and the impact this has on an individuals financial plan I believe this step by the FCA is a move in the right direction."
Back in June FTAdviser spoke to providers about the impact of a cap and the majority stated the bulk of their pension contracts had exit fees of less than 1 per cent.
But several admitted they do still have a small number of contracts with exit charges of a greater amount meaning they will now have to assess the impact of the cap being set at this level.
emma.hughes@ft.com
