U.K. Minister for Pensions Richard Harrington plans to cap early exit charges for workplace defined contribution plans at 1% for participants in existing plans, and zero for new arrangements.
The change will bring exit charges into line with other retirement plans in the U.K.
Currently, some participants face an early exit charge of about 5% of their DC savings.
The Department for Work and Pensions deemed early exit charges as those imposed on participants who seek to access their savings prior to the agreed upon date at which they may withdraw their savings unreduced.
The plans were announced in the government’s response to a comment paper published May 26.
“We are restoring fairness and creating a level playing field in a system that has favored the interests of providers over consumers for too long,” Mr. Harrington said in a statement accompanying the response paper. “This new cap will protect people’s savings from excessive charges, so more of their money will go toward the comfortable retirement they have saved for.”
The cap will be regulated by The Pensions Regulator, and will mirror work by the Financial Conduct Authority, the U.K.’s financial watchdog, for other types of retirement plans, such as personal plans.
“It is important that there should be a level playing field between trust and contract-based pension schemes,” said Andrew Warwick-Thompson, executive director for regulatory policy at TPR, in the same statement.
The cap is set to come into force in October 2017, following a period of consultation on the new regulations early next year.
The move was welcomed by Darren Philp, director of policy and market engagement at multiemployer defined contribution plan The People’s Pension, West Sussex. “This is good news for savers and removes the anomaly that existed between trust and contract-based schemes,” Mr. Philp said in an e-mail. “Savers should be free to move their money without penalty and, while today’s announcement is a significant step in the right direction, exit fees have no place in a modern pensions system no matter what type of pension people are saving in.”
The response to the original consultation paper is available on the government’s website.