The UK financial watchdog is set to crackdown on early exit fees, which charge investors who want to cash in their pensions before a set retirement age. The move follows Chancellor George Osborne’s pledge to tackle the “rip-off” charges levied on those aged 55 and over who want to make use of the pensions freedom rules he introduced in April 2015.
Last week the Financial Conduct Authority (FCA) announced that so-called “exit charges” will be capped for people with contract-based personal pensions, including workplace pensions. The cap, which will stand at 1% of the value of a member’s pension pot, will come into force from 31 March 2017. Meanwhile, providers will also be banned from increasing the exit fees on existing policies if they are already below the proposed 1% cap. On top of that, any new pension scheme set up after the new rule comes into force from next year will be banned from charging an exit fee at all.
Data collected by the FCA show that around 700,000 customers in contract-based pension schemes could face some sort of early exit charge when they want to access their pension savings before their specified retirement date. Some 358,000 faced charges below 2%, while 66,000 faced charges of an incredible 10% or more of the value of their pension pot. The FCA’s consultation runs until 18 August, during which time it will consult consumers and the pension industry on its proposal.
The government also announced last week that it intends to cap charges for millions of savers in “trust-based” workplace pension schemes, such as master trusts, which are overseen by the Pensions Regulator, not the FCA.