The FCA has decided to go ahead with plans to cap early exit charges on personal pensions for existing and new schemes.
The regulator has published a policy statement today which sets the cap at 1 per cent of the value of benefits being taken or transferred from existing contract-based personal pensions, including workplace personal pensions.
The cap will come into effect from 31 March. For existing schemes, early exit charges set below 1 per cent cannot be increased. New schemes entered into after 31 March cannot impose any kind of early exit charges.
The FCA first consulted on the proposals in May, following a separate paper from the Treasury on barriers to accessing pension freedoms.
FCA estimates suggest the charge cap could cost providers between £46m and £89m over four years.
Providers and industry respondents argue this is a “significant” underestimate as the cap will be in force beyond 2020, but the FCA says its cost benefit analysis remains valid.
Compliance costs to the industry are estimated at £17.4m, though again some respondents believe this to be an underestimate.
On the introduction of the cap, FCA executive director of strategy and competition Christopher Woolward 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.”