The Financial Conduct Authority has today announced plans to cap at 1% of the value of their pensions the charges British pensioners wishing to make use of their new pension exit freedoms could be charged.
The UK regulator outlines its proposals, which would affect existing contract-based personal pensions, including workplace personal pensions, in a new consultation paper. The cap would take effect from March next year.
The regulator said that it had considered a 0% cap on all existing contract-based personal pensions. Instead, it is proposing that 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, called the move an “important step”, as it would enable people to access their pension savings should they wish to, without being deterred by charges.
The FCA will be given both the power and duty to cap exit fees by Parliament once the relevant section in the Bank of England and Financial Services Act 2016 comes into force, to ensure that consumers can access the government’s pension reforms easily and affordably.
Separately, the Department for Work and Pensions will today announce its own consultation, to cap early exit charges for members of occupational pension schemes, which will be available later and run for a period of 12 weeks.
18 August deadline
The FCA is asking for responses to its consultation paper to be received by 18 August.
The UK Treasury announced in January findings from the FCA that showed that nearly 700,000 customers, or 16% of the total, in contract-based schemes who are able to flexibly access their pension could face some sort of early exit charge.
Following the new pension freedoms, which came into effect on 6 April 2015, the FCA reported that almost 400,000 pension pots have been accessed flexibly under the new freedoms with many providers offering their customers a range of options.
66,000 faced fees over 10%
FCA investigations showed that 670,000 consumer aged 55 or over faced an early exit charge. Of these, 358,000 faced charges between 0-2%; 165,000 faced charges between 2-5%; 81,000 faced charges between 5-10%; and 66,000 faced charges above 10%.