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26 May 2016

Exit charges should be capped at 1%, says pensions regulator

The Financial Conduct Authority (FCA) has announced that it plans to cap exit charges for savers withdrawing money from their pension pots at 1%, BBC News reports.

It was found that some 670,000 savers had faced charges of as much as 10% when attempting to access their money. Recognising this problem, the FCA recently announced plans to introduce a 1% cap on charges and said that people signing up to pension schemes from March 2017 and beyond should not face any charges for withdrawing their money.

The suggested cap would be applicable to personal pensions as well as those set up through workplace pension schemes.

In addition to the announcement, the Department for Work and Pensions (DWP) is also going to consult on exit fee caps for those saving into occupational pensions. According to Dr Yvonne Braun, director of policy at the Association of British Insurers, the group would work “closely” with both the government and the FCA on this matter.

“More than eight out of 10 customers do not have to pay early exit charges to access their pensions,” she explained, adding: “Where they do, most fees are 2% or less and were put in place decades before the Freedom & Choice reforms were introduced.”

Consumer body Which? Has welcomed the news, but warned that many savers still face high charges, especially when it comes to income drawdown products.

Director of policy and campaigns at Which?, Alex Neill, stated that while it was right for the FCA to introduce these pension caps, this should only be considered a first step and “the regulator must now turn its attention to other charges people face when trying to make the most of the pension freedoms.”

Copyright M2 Bespoke 2016

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