Early exit fees for accessing pensions to be capped at 1%
Plans to cap early exit charges for people using new retirement freedoms have been confirmed, following concerns that high fees could block people from accessing their own savings.
The Financial Conduct Authority (FCA) said early exit fees for people accessing their pensions will be capped at 1% .
Early exit fees may be charged when someone transfers or takes their pension benefits after the age of 55 but before their selected retirement age.
From March 31, 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 less than 1% may not be increased.
The FCA said firms will not be able to apply an early exit charge to personal pension contracts entered into after the new rules take effect.
The Government said people can currently face early exit charges of around 5% of their pension pot simply for cashing in their own savings.
Pensions minister Richard Harrington said: "This new cap will protect people's savings from excessive charges, so more of their money will go towards the comfortable retirement they have saved for."
Automatic enrolment into workplace pensions was launched in 2012, to encourage people to get into the savings habit amid fears that people are living for longer but not putting enough money aside for their old age.
As part of the pension savings revolution, new freedoms were introduced in 2015 for over-55s, meaning they are no longer required to buy a retirement income called an annuity with their pension savings and have more choice over how their money is used.
Former chancellor George Osborne said previously that the Government was not prepared to see people "either ripped off or blocked from accessing their own money by excessive charges".
Nathan Long, a senior pension analyst at Hargreaves Lansdown, said: "It remains important to be vigilant when transferring pensions, as 1% could still be a chunky sum to lose from your pension at the point of retirement."
Christopher Woolard, executive director of strategy and competition at the FCA, said p eople eligible for the Government's pension reforms should feel able to access them as they wish.
He said: "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."
Yvonne Braun, director of policy, long-term savings and protection at the Association of British Insurers (ABI), said: "The industry is strongly supportive of the pension freedoms and has worked hard to make them a success.
"More than eight out of 10 customers are unaffected by early exit charges. Where they do apply, most fees are 2% or less and would have been put in place many years ago."
In June, Citizens Advice estimated that 160,000 people had paid to access their pensions since April 2015, with those facing fees reporting an average of £1,577.
Gillian Guy, chief executive of Citizens Advice, said: "Exit fees are not the only issue people have been experiencing. Many are facing delays in accessing their pot and others are being hit with unclear advice charges to transfer their pension."