The Financial Conduct Authority (FCA) has announced that early exit charges for existing contract-based pensions, including workplace pensions should be capped at 1% of the value of a member’s pot.

Under the proposals, firms will not be able to apply exit charges for personal pension contracts from the date the new rules come into force (which is yet to be determined).

The FCA is consulting on the following measures:

• A 1% cap of a consumer’s policy value at exit. This will prevent a rise in charges for existing contracts with early exit penalties set at less than 1%
• A 0% cap on early exit charges of consumer policy value in new contracts entered into after the rules come into force.
  Christopher Woolard, director of strategy and competition at FCA, said:

“This is an important step so people feel able to access their pension savings should they wish to.”

Minister for pensions, Baroness Ros Altmann, commented:

“These changes are about giving everyone who has worked and saved hard for their retirement a fair deal by removing the final barriers to the pension freedoms.”

Dr Yvonne Braun, director of policy, long-term savings and protection at ABI, said:

“More than eight out of ten customers do not have to pay early exit charges to access their pensions, as the FCA has acknowledged. Where they do, most fees are 2% or less and were put in place decades before the freedom and choice reforms were introduced.”