No charge for early exit on pensions under FCA proposals
Firms will not be able to charge consumers for taking money out of their pensions early under new proposals put forward by the FCA.
The watchdog is calling for a one per cent cap on for people with existing contract-based personal pensions, including workplace personal pensions.
But for future pensions, firms will be banned from applying fees.
Christopher Woolard, director of strategy and competition at the FCA, said: "Together with the ban on exit fees in future contracts, we are proposing a one per cent cap on exit charges in existing contracts to ensure people can access their pension pots without being deterred by charges.
"This is an important step so people feel able to access their pension savings should they wish to."
The FCA will be given the power "and the duty" to cap fees by parliament once the relevant section in the Bank of England and Financial Services Act 2016 comes into force.
This aims to ensure that consumers can access the government’s pension reforms easily and affordably.
John Perks, managing director of retirement solutions at LV=, welcomed the move.
“Clamping down on excessive exit fees is absolutely the right thing to do as these are one of the reasons people aren't shopping around at retirement," he said.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, added: “Exit penalties on out-dated pension contracts have absolutely no place in the modern pension savings system. Capping these fees will provide significantly better choices for investors wishing to use the pension freedoms.
"However, this cap does not go far enough. The fee should be capped at zero per cent and this would benefit a further 150,000 investors. A one per cent cap is something of a victory for corporate vested interests. We hope that the cap can be brought up to a zero tolerance of exit barriers in due course.
"The cap also only applies to those exercising the pension freedoms. Those wishing to transfer old, expensive private pensions to improve their value for money, while they are still building their savings, will not benefit from the cap. This penalises those who are doing the right thing by saving but are hamstrung from making competitive choices which would help their hard earned money work much harder.
"Investors may also have to wait until March 2017. We are writing to FCA today for confirmation that anyone wishing to transfer from today's date can have a guarantee that they can reclaim any charges – we want the ban to start immediately.”
Separately, the Department for Work and Pensions will today announce its consultation capping early exit charges for members of occupational pension schemes later today.
The consultation will run for 12 weeks.