The Financial Conduct Authority (FCA) will be given the power to cap “excessive” early exit fees on pension pots.
The new FCA responsibility will be introduced through legislation and the government will be publishing a formal response.
The proposals will see the FCA being independently responsible for determining what the level of the cap on early exit fees will be. The FCA is due to launch a consultation on what this should be.
Around 700,000 (16%) customers in contract-based schemes could face some form of early exit charge for accessing their pot.
Furthermore, a “significant minority” were potentially looking at charges high enough that could “effectively put them off accessing their pension flexibly”.
So far, 400,000 pension pots have been accessed under the new pension freedoms.
Further FCA investigation found that of the 670,000 consumers aged 55 or over that have faced an early exit charge:
- 358,000 were charged between 0-2%
- 165,000 were charged 2-5%
- 81,000 were charged 5-10%
- 66,000 were charged 10% and over.
The chancellor George Osborne, said the government was not prepared to stand by and see people “either ripped off or blocked from accessing their own money”:
“We’re determined that people who’ve done the right thing and saved responsibly are able to access to their pensions fairly.”
The Association of British Insurers has responded to the announcements by emphasising that 80% of customers do not currently face the possibility of early exit charges:
“Where they do, most fees are below 5% and were put in place decades before the freedom and choice reforms were introduced.”