At last some good news for pension holders. The Financial Conduct Authority has issued new regulations for pension providers. In principle if you want to take your pension pot away from your existing pension provider’s fund, the maximum charge you will incur will be 1% of the amount transferred. The rules come into force on 31 March this year.
In April 2015 the government introduced new pension freedom rules effectively allowing anyone over 55 to take their pension pot out of an existing scheme and invest it with a different pension provider, or use it for any other purpose they choose. According to a report published recently by HMRC over half a million people have taken advantage of the new rule and withdrawn over £9 billion since the rules were changed.
Pension providers jumped on the bandwagon to charge high exit fees when pensions were withdrawn from their own schemes, hitting customers hard in the pocket. Top of the league were providers such as LV, hitting savers with a whopping exit fee up to 6% when they decided to move their pension pot, on top of annual charges and other fees.
Pension providers are now required to limit exit fees to 1%, and an increasing number, including Scottish Widows, LV and Royal London are progressively eliminating exit fees all together.
The cap only applies to private pensions, and not to occupational schemes such as those offered by employers. However, that is likely to change in October if the Department of Work and Pensions follows through with current plans.
Every silver lining has a cloud and in this case we come back to our old friend St James’s Place, a massive pension provider. If customers wish to transfer funds from SJP within the first six years they will incur an “early withdrawal charge” of up to 6%. SJP claim that their early withdrawal charge breaks no laws or regulations because they only apply if a customer takes action before their previously chosen retirement date.
Whatever your circumstances it makes sense to obtain confirmation on exit fees from a pension provider before applying to withdraw your pension pot, and also before making any investments. The £12 billion a year annuity market has shrunk by over 40% since the rules were changed – and insurers will be looking to make good the loss any way they can.
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