Exit fees for existing contract-based pension plans should be capped at 1% of the value of an account, said the U.K.’s financial watchdog.
The Financial Conduct Authority said Thursday it will look at capping fees for participants who want to withdraw their savings early — taking advantage of so-called pension freedoms introduced in April 2015. No exit fee will be charged on new individual pension plan accounts under the proposals.
“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,” said Christopher Woolard, director of strategy and competition at the FCA, in a statement on the watchdog’s website. “This is an important step so people feel able to access their pension savings should they wish to.”
Last July, the U.K. Treasury launched a consultation into barriers to accessing savings under the new freedoms, and found that participants currently face early exit fees at a level that presents “a real barrier to accessing” the freedoms. The Treasury concluded that action needed to be taken to limit fees.
The latest consultation is open to comments until Aug. 18, and is available on the FCA’s website.
The announcement came as the Department for Work and Pensions launched its own consultation into capping early exit fees for participants in corporate pension plans.
“These changes are about giving everyone who has worked and saved hard for their retirement a fair deal by removing the final barriers to the pension freedoms,” said Baroness Ros Altmann, minister for pensions, in a news release. “I urge people to continue to work hard, plan and save for their future, and we will continue to reform the pension system so that it delivers for them.”
The DWP said it will work with the U.K. retirement industry on the proposals to introduce a fee cap. Any cap would be intended to apply across both corporate and personal retirement plans.
The consultation will run for 12 weeks, and is available on the U.K. government’s website.