Some experts believe so
The financial regulator has recently introduced a one percent cap on the fees that pension providers can charge people to access their pension funds early. They come into effect from 1 April 2017. But is one percent low enough?
This does not constitute advice and advice should be sought in all instances before acting on it.
Early exit fees on pension funds
The Pension Reform in 2015 announced that pensioners could access their pension pot after the age of 55, subject to income tax.
Since then though pension providers have been able to charge any level of fees to their customers to withdraw, what is effectively, their own savings.
Some providers were charging as much as 10 percent, so the Financial Conduct Authority (FCA) have put a stop to this by introducing a maximum cap on fees, starting from April 2017.
Those providers that charge less than one percent already will not be able to raise their fees to meet the new cap threshold.
Also, those pensioners starting a new pension contract, will not face any early exit fees.
This is to avoid people getting deterred from pension investment.
The idea with the Reform was to encourage pension savings by making money accessible from an earlier age.
The early exit fees by some providers were going against the concept of “pension freedoms”, as promised from the Reform.
“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.” Christopher Woolard, FCA
The same will apply to Workplace pensions, however the rules will not come into effect until October 2017.
Is 1 % low enough though?
One percent is of course a vast improvement on 10 percent. However, 1 percent of a £100,000 pension investment is still a fee of £1,000.
“The cap on early exit fees for pensions, including occupational schemes, is a start, but 1% of a £100,000 pension is still a £1,000 charge for accessing your own savings,” Tom Selby, AJ Bell.
Some experts think that the 1 percent, therefore, isn’t low enough and the market is hoping that the authorities continue to monitor it.
If early exit penalties continue to deter people from extracting their pension savings at the time when the new pension reform rules entitle them to, then there could be argument to abolish it completely.
Got a pension question? Speak to Darren.
If you have a question regarding your pension, or you would like advice on setting up a pension as part of a retirement plan, please contact Darren.
Tel: 01403 780 770