A 1% cap on early exit charges for occupational pensions has been announced by the UK’s Minister for Pensions and the UK financial services regulator the Financial Conduct Authority today.
The cap will be set at 1% for existing occupational pensions and 0% for any new contracts, removing unnecessary barriers for those wanting to access their savings. This will bring exit charges for workplace pensions in line with other personal and stakeholder pensions, for consumers eligible to access the UK government’s pension reforms from age 55.
Currently people can face average early exit charges of around 5% of their pension pot simply for cashing in their own savings.
Minister for Pensions, Richard Harrington, said that the move was “restoring fairness and creating a level playing field in a system that has favoured the interests of providers over consumers for too long”.
The cap on occupational pensions, will be regulated by The Pensions Regulator, mirroring the work of the FCA for personal and stakeholder pensions.
‘Another important step’
Executive Director for Regulatory Policy at The Pensions Regulator, Andrew Warwick-Thompson, called the move “another important step” in helping to ensure the best possible outcomes for savers.
The FCA announced its final rules on capping early exit charges at the same time announcing that from 31 March 2017, early exit charges will be capped at 1% of the value of existing contract-based personal pensions, including workplace personal pensions.
Early exit charges that are currently set at less than 1% 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 added: “People eligible for the government’s pension reforms should feel able to access them as they wish.”
Lifetime ISA 5% fee
Despite the changes, Tom Selby, senior analyst at AJ Bell, has called for the government to go further in its reforms as well as calling for consistency for other savings products such as the Lifetime ISA.
“The cap on early exit fees for pensions, including occupational schemes, is a start but 1% of a £100,000 pension is still a £1,000 charge for accessing your own savings,” said Selby. “The pension freedoms are now well established yet there are still thousands of people that are going to have to pay thousands of pounds to access them.
“The 1% cap on early exit penalties for pensions also makes the 5% government sanctioned early exit penalty for the Lifetime ISA look preposterously inconsistent. Now the policy for pensions is confirmed, we’d like to see the same principles applied to the Lifetime ISA and the government remove the 5% early exit fee before it launches in April 2017,” added Selby
Dr Yvonne Braun, director of policy, long-term savings and protection, at the Association of British Insurers, said: “We note the 1% cap. The industry is strongly supportive of the pension freedoms and has worked hard to make them a success. More than 8 out of 10 customers are unaffected by early exit charges. Where they do apply, most fees are 2% or less and would have been put in place many years ago.”
Click on this link to read the FCA’s full policy statement – Capping early exit pension charges: Feedback on CP16/15 .