FCA publishes pension exit charge rules

FCA logo glass 2 620x430Early exit charges will be capped at 1 per cent of the value of existing contract-based personal pensions, including workplace personal pensions, and new contracts cannot have any exit charge at all, the FCA has confirmed today.

Early exit charges that are currently set at less than 1 per cent may not be increased and will not be able to apply an early exit charge to personal pension contracts entered into after new FCA Handbook rules take effect from 31 March 2017.

The FCA predicts that the measures will cost the industry between £46m and £89m over the next four years, as well as compliance costs of £17m.

The FCA says it preferred a percentage cap to a fixed monetary amount as this would benefit consumers with small pots. Market value adjustments on with-profits policies are not included within the rules.

The regulator says some industry respondents to its consultation on the rules expressed concern that the cap itself could, directly or indirectly, provide a significant incentive to customers of normal minimum pension age or older to exit their pension scheme, irrespective of whether or not they intend to exercise the freedoms.

The FCA rejected the assertion that increased exits may correlate to proximity to retirement age rather than lower exit charges. Its data collected from firms on a quarterly basis showed that take-up of the freedoms in the 55–59 age group is slightly stronger than among older consumers.

FCA executive director of strategy and competition Christopher Woolard says: “People eligible for the Government’s pension reforms should feel able to access them as they wish. The 1 per cent cap on early exit charges for existing pensions, and the 0 per cent cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”

The new Handbook rules

With effect from 31 March 2017, early exit charges:

– will be capped at 1% of the value of a member’s benefits being taken, converted or

transferred from a scheme

– cannot be increased in existing schemes that currently have early exit charges set at less

than 1% of the member’s benefits under a scheme, and

– cannot apply in schemes entered into after the proposed new rules come into force