FCA introduces cap on early exit pension charges

From 31st 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.

The government confirmed earlier this year that it will limit early exit charges by introducing legislation which requires the FCA to cap them; and by mirroring these requirements for trust-based schemes.

It said that the FCA is "best placed to develop such a cap in a manner which achieves a fair balance between the important public policy objective of ensuring that early exit fees do not pose an unreasonable barrier to people accessing the pension flexibilities and the contractual property rights of pension firms".

Approximately 30% of people surveyed by the government said that they faced an exit charge when leaving their pension and a similar number of respondents indicated that early exit charges impacted on their decision to access their pensions under the freedoms.

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.”