Pensions: Regulator plans to cap exit charges at 1%

pensions under magnifying glass Image copyright Thinkstock

Savers withdrawing money from their pension pots could face a maximum exit charge of 1%, under plans released by the Financial Conduct Authority (FCA).

People joining pension schemes after March 2017 should be able to withdraw their cash for free, the FCA said.

The regulator said that 670,000 savers had faced charges of up to 10% when trying to access their money.

The proposed cap would affect personal pensions, including those arranged through workplace schemes.

Separately, the Department for Work and Pensions (DWP) is to consult on plans to cap exit fees for those paying in to occupational pensions.

Dr Yvonne Braun, director of policy at the Association of British Insurers, said the body would "engage closely" with the government and the FCA on the consultations.

"More than eight out of 10 customers do not have to pay early exit charges to access their pensions, as the FCA has acknowledged," she said.

"Where they do, most fees are 2% or less and were put in place decades before the Freedom & Choice reforms were introduced."

'Good first step'

The government announced its intention to limit charges in January this year, after people complained they were unable to use the so-called pension freedoms.

Since April 2015, those over 55 are able to withdraw as much as they like from their pension pots, subject only to income tax.

Which? welcomed the announcement, but said many people still faced high charges, particularly on income drawdown products.

"It's right that the FCA is bringing in this cap on pension exit fees," said Alex Neill, director of policy and campaigns at Which?

"This announcement is a good first step, and the regulator must now turn its attention to other charges people face when trying to make the most of the pension freedoms."

The FCA will now consult on the level of the exit cap.

The new rules should be in place by March 2017, after the Bank of England and Financial Services Act becomes law.

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