The Financial Conduct Authority has confirmed its final rules surrounding the introduction of an early exit charge cap of 1 per cent for existing contract-based personal pension schemes, which will come into effect from 31 March 2017.

As a result consumers aged over 55 who are eligible to access their pension pots will no longer face excessive charges for taking their pensions out early. The charge will be capped at 1 per cent of the value of the member’s benefits being taken, converted or transferred from a scheme.

In addition, schemes that have existing early exit charges set below 1 per cent will not be allowed to increase the fee. For schemes entered into after the new rules come into force, there cannot be any early exit charges.

Explaining why it decided to stick with its original proposal of 1 per cent, the FCA said it remains of the view that a cap of 1 per cent of the member’s benefits in relation to existing contracts delivers the appropriate protection required by the duty.

“It strikes a proportionate balance between benefits, in terms of reducing the deterrent effect of early exit charges, and costs to firms of applying the cap. A cap of 0 per cent for new contracts prevents the emergence of early exit charges in future, with little financial impact for most firms.

“The consultation responses support our findings that a) exit charges are no longer a feature of the majority of recent personal and stakeholder pension schemes; and b) the implementation of the Retail Distribution Review in effect removed any real justification for their inclusion in new contracts,” it said in it policy statement.

FCA executive director of strategy and competition Christopher Woolard said: “People eligible for the government’s pension reforms should feel able to access them as they wish. The 1 per cent cap on early exit charges for existing pensions, and the 0 per cent cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.”

Commenting on the announcement Hargreaves Lansdown senior pension analyst Nathan Long said the capping of early exit is a “huge step in the right direction”.

“The 147,000 people aged over 55 who were facing exit penalties in excess of 5 per cent will be relieved that they are now able to transfer to a more modern pension now the shackles have been released. It remains important to be vigilant when transferring pensions, as 1 per cent could still be a chunky sum to lose from your pension at the point of retirement.

“There are also hundreds of thousands of people with large exit penalties under the age of 55 for whom the exit penalty cap will not help with pre-retirement consolidation, so it pays to be aware especially with older style pension plans.”

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