LONDON (Reuters) - Charges on Britons cashing in their pension early will be capped at 1 percent of the pot’s value from March 2017, the Financial Conduct Authority proposed on Thursday.
The FCA also said that insurers will not be able to apply any early exit charge for personal pension contracts entered into after the proposed new rules come into force.
Britain has introduced so-called “pension freedom” reforms in a bid to give people aged 55 years or over more choice in providing for their retirement, but high exit fees have put off some people.
“This is an important step so people feel able to access their pension savings should they wish to,” FCA Director of Strategy and Competition Christopher Woolard said in a statement.
If the exit charge in a pension contract is already set at below 1 percent, it cannot be raised, the FCA said.
Just under 750,000 people have pensions that include an exit charge and could therefore potentially benefit from the cap between 2017 and 2020, it added.
Separately, the government is consulting on capping early exit charges in occupational pension schemes.
“Over 230,000 people took advantage of our pensions freedoms in the first year by accessing 4.3 billion pounds flexibly from their pension pots,” Harriett Baldwin, a junior finance minister, said.
Funds supermarket Hargreaves Lansdown said the 1 percent cap was a “victory for corporate vested interests”, and should have been set at zero percent to benefit a further 150,000 investors.
“Those wishing to transfer old, expensive private pensions to improve their value for money, while they are still building their savings, will not benefit from the cap,” Hargreaves Lansdown’s head of retirement policy, Tom McPhail, said.
The ban will not start until next year and Hargreaves Lansdown said it will ask the FCA if anyone cashing in a pension from Thursday can have a guarantee that they can reclaim any charges.
JPMorgan Cazenove said the 1 percent cap will not have a material financial impact on UK life insurers.
“The FCA is estimating a loss of revenue of 65 million pounds for the industry over four years which, in our view, is negligible for the UK life industry,” JPMorgan Cazenove said in a note to clients.
Reporting by Huw Jones, editing by Susan Fenton and Susan Thomas