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1% cap on early exit pension charges comes into force
Anyone aged over 55 who wants to cash in their workplace or personal pension pots early will now pay a maximum of 1% in charges.
New rules came into effect on March 31, 2017, that limit the charge that can be imposed on someone transferring or taking their benefits at the age of 55-plus, but before retirement age.
This does not mean that everyone accessing their pension pot early will have to pay a full 1% charge. The Financial Conduct Authority (FCA) has ruled that schemes that currently have early exit charges set at less than 1% cannot now increase them.
Additionally, new contracts for pensions taken out from April onwards will not be allowed to charge any exit fee at all for early withdrawals.
The changes have been introduced after it emerged that some personal pension providers were imposing heavy charges on the over-55s trying to take advantage of new “pension freedoms” introduced in April 2015.
These pension reforms enabled consumers at or after normal minimum pension age to:
- Take their pension savings as cash (in one lump sum or in smaller amounts over time)
- Buy an annuity (or other income generating guaranteed products that may emerge)
- Use drawdown without any limits applied, or
- Use a combination of the above
“People eligible for the Government’s pension reforms should feel able to access them as they wish,” said Christopher Woolard, Executive Director of Strategy and Competition at the FCA.
“The 1% cap on early exit charges for existing pensions, and the 0% cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”
If you are thinking of cashing in your pension pot early, be sure to speak to one of our advisers first. We’ll make sure you get all the facts you need to make a proper considered decision.