FCA introduces cap on early exit pension charges

From 31st March 2017, early exit charges will be capped at 1 per cent of the value of existing contract-based personal pensions, including workplace personal pensions.

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% cap on early exit charges for existing pensions, and the 0% cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”

James Tufts, head of life & pensions at EY, said: “This announcement is not unexpected, and will be welcomed by the over 55s. It is intended to remove any excessive withdrawal charges on existing personal pensions, although the majority will already have charges of 1 per cent or less. While it’s a positive development for people who might want to access their pension after they hit 55, there are still many critical considerations to be addressed for pensioners, such as their need for income during retirement, the impact on their personal tax situation, and where and how to obtain suitable advice. On the industry side, this cap will likely have a limited impact on insurers profitability as most had already voluntarily moved their charges to this level or below.”