The UK financial watchdog is set to crackdown on early exit fees, which charge investors who want to cash in their pensions before a set retirement age. The move follows Chancellor George Osborne's pledge to tackle the "rip-off" charges levied on those aged 55 and over who want to make use of the pensions freedom rules he introduced in April 2015.
Last week the Financial Conduct Authority (FCA) announced that so-called "exit charges" will be capped for people with contract-based personal pensions, including workplace pensions. The cap, which will stand at 1% of the value of a member's pension pot, will come into force from 31 March 2017. Meanwhile, providers will also be banned from increasing the exit fees on existing policies if they are already below the proposed 1% cap. On top of that, any new pension scheme set up after the new rule comes into force from next year will be banned from charging an exit fee at all.
Data collected by the FCA show that around 700,000 customers in contract-based pension schemes could face some sort of early exit charge when they want to access their pension savings before their specified retirement date. Some 358,000 faced charges below 2%, while 66,000 faced charges of an incredible 10% or more of the value of their pension pot. The FCA's consultation runs until 18 August, during which time it will consult consumers and the pension industry on its proposal.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
The government also announced last week that it intends to cap charges for millions of savers in "trust-based" workplace pension schemes, such as master trusts, which are overseen by the Pensions Regulator, not the FCA.
Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide.
She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.
Stocks and shares ISAs beat cash ISAs despite rising interest rates
Exclusive analysis for MoneyWeek shows that the stock market beat cash ISAs last year - and when inflation is factored in, cash savers actually made a loss. We run through the figures.
By Ruth Emery Published
Waspi women: could they get £10,000 compensation under new bill?
Many women born in the 1950s got a raw deal due to the rising state pension age. The “Waspi” campaign group has been lobbying for compensation for years - we outline the journey so far, and whether they might finally receive some money.
By Ruth Emery Published