Pension exit fees
It is now almost two years since the new pension freedoms provided those aged 55 and over new opportunities 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 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.
Last year, the FCA published a consultation looking at introducing a cap to the exit charge. It was subsequently agreed that early exit charges will be capped at 1% of the value of existing personal group / workplace pensions as well as self-invested personal pensions. This new cap comes into effect at the end of this month. 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 cap from 31 March 2017.