Proposals to cap pension early exit charges at 1%

[caraidalba]

I saw yesterday this yesterday:

"Plans to clamp down on early exit charges for people using new pension freedoms have been set out.

The Financial Conduct Authority (FCA) has proposed that exit charges should be capped at 1% of the value of the pot.

Early exit fees may be charged when someone transfers or takes their pension benefits after the age of 55 but before their selected retirement age.

The proposals apply to existing contract-based personal pensions, including workplace personal pensions. The FCA said firms will not be able to apply any exit charge for personal pension contracts entered into after the proposed new rules come into force.

Christopher Woolard, director of strategy and competition at the FCA, said: "Together with the ban on exit fees in future contracts, we are proposing a 1% cap on exit charges in existing contracts to ensure people can access their pension pots without being deterred by charges.

"This is an important step so people feel able to access their pension savings should they wish to."

Introduced last year, the new freedoms give people aged 55 and over a wider range of choices over how they use their pension pot, rather than being required to buy a retirement income called an annuity.

But concerns were raised that high charges were acting as a barrier to some people using the freedoms how they wanted.

The Department for Work and Pensions has also launched a consultation to prevent people in occupational schemes facing exit charges for accessing their pensions early. The consultation closes on August 16.

Chancellor George Osborne said: "Nearly quarter of a million people have already taken advantage of the Government's pension freedoms, accessing their money when it suited them. I want everyone to have the same opportunity, including people who are eligible but currently face some sort of early exit fee.

"And I am clear that people who've done the right thing and saved responsibly should be able to access their pensions fairly. They shouldn't face prohibitive charges that block them from exiting their current deal."

Mr Osborne continued: "I am pleased that the FCA plans to cap exit fees at just 1% for current pension holders and ban them from future contracts altogether."

Previous FCA investigations have found that 670,000 consumers aged 55 or over faced an early exit charge. Of these, 358,000 faced charges up to 2%, 165,000 faced charges between 2% and 5%, 81,000 faced charges between 5% and 10%, and 66,000 faced charges above 10%.

The FCA is being given the power and duty to cap exit fees by Parliament. It aims to put the cap in place by March next year"


It was on a number of websites and newspapers. I am wondering does this mean that hopefully at the end of March next year, The Post Office Pensions will no longer be penalising staff 5% per year for taking their pension from 55 onwards, and instead it will be capped at 1%?

[RobertT]

The answer to your question lies here:

The proposals apply to existing contract-based personal pensions, including workplace personal pensions. The FCA said firms will not be able to apply any exit charge for personal pension contracts entered into after the proposed new rules come into force.

The RMPP is not a personal pension therefore this article doesn’t apply to it.
But it may affect any charges relating to the RMDCP or to the transferring of AVC’s.

[caraidalba]

The answer to your question lies here:

The proposals apply to existing contract-based personal pensions, including workplace personal pensions. The FCA said firms will not be able to apply any exit charge for personal pension contracts entered into after the proposed new rules come into force.

The RMPP is not a personal pension therefore this article doesn’t apply to it.
But it may affect any charges relating to the RMDCP or to the transferring of AVC’s.

That's a shame. What does RMPP come under, and what sort of companies would this cover? Cheers.

[Tman]

I saw yesterday this yesterday:

The Post Office Pensions will no longer be penalising staff 5% per year for taking their pension from 55 onwards, and instead it will be capped at 1%?

The 5% is a value reduction because you aren't going to be paying in to it for those years so the value is lower.
You think you'd still get 99% even though you're not paying in for an extra (final) 10-12 years?

[RobertT]

The answer to your question lies here:

The proposals apply to existing contract-based personal pensions, including workplace personal pensions. The FCA said firms will not be able to apply any exit charge for personal pension contracts entered into after the proposed new rules come into force.

The RMPP is not a personal pension therefore this article doesn’t apply to it.
But it may affect any charges relating to the RMDCP or to the transferring of AVC’s.

That's a shame. What does RMPP come under, and what sort of companies would this cover? Cheers.

The RMPP is a final/average salary or defined benefits scheme.

If you have a defined contribution pension and you want to take out your money under the new pension freedoms, then these proposals will apply. All it means it that the charges associated with taking your money out can’t be more than 1%.

So if you have a pot of £10,000 for example, the maximum charge for withdrawal would only be £100. Going by the article you posted, some people are currently paying charges of £1,000(10%) or more.

[RobertT]

The 5% is a value reduction because you aren't going to be paying in to it for those years so the value is lower.
You think you'd still get 99% even though you're not paying in for an extra (final) 10-12 years?

The 5% per year reduction applies to the pension you’ve accrued at the date of taking it, assuming it’s before normal retirement age.

The figures on your annual statement are merely a projection of what you might get if you carry on working until 65.

[kh]

so at 55 you will not lose 5% a year is this right

[RobertT]

so at 55 you will not lose 5% a year is this right

If you take any of your pension/s before normal retirement age you will lose 5% per year. So if you were to take all of it at 55 your NRA60 would be reduced by 25% and your NRA65 by 50%.

The article above refers to personal pensions, which the RMPP isn't, as has already been explained.