Pension exit fees
The introduction of new pension freedoms in April 2015 has provided hundreds of thousands of people in the UK aged 55 and over new opportunities to be able to access their pension savings. The new rules allow the over 55’s new freedoms to access their pension pots by taking lump sum payments. The first 25% is tax-free and the remainder is taxed at the individual’s marginal rate.
However, an unexpected consequence of these changes has resulted in some people being charged excessive early exit charges. The independent Financial Conduct Authority (FCA) is the authority responsible for setting the level of the cap.
The FCA published a consultation earlier this year on the proposed level of the exit charge cap. The FCA has now confirmed that from 31 March 2017 early exit charges will be capped at 1% of the value of existing personal group / workplace pensions as well as self-invested personal pensions. The FCA has also confirmed that existing schemes that have early exit charges of less than 1% must be retained.
The FCA has also introduced a 0% cap for exit charges on new contracts. This will apply whether or not the party to that contract is an existing member or a new joiner. Any firms affected by these changes will need to ensure compliance with the charge cap from 31 March 2017 onwards.