The Financial Conduct Authority (FCA) plans to scrap exit fees on all new personal pension policies from March 2017, and exit charges on existing contract-based personal pensions will be capped at 1 per cent of the value of the pension pot.
The FCA's proposals come in response to chancellor George Osborne's announcement in January to end prohibitive charges on accessing pension pots, thereby allowing savers to take advantage of the newly implemented pension freedoms. The freedoms give people aged 55 and over complete access to their pension pots.
FCA data has found that one in six people aged over 55 - about 670,000 consumers - face charges if they withdraw money from their pension before their policy's stipulated retirement age. Of these, 358,000 face charges of 0-2 per cent, 165,000 2-5 per cent, 81,000 5-10 per cent and 66,000 more than 10 per cent.
Christopher Woolard, director of strategy and competition at the FCA, described the exit fee proposals as an important step forward for people wishing to access their pension savings.
However, pension analysts are split on whether the proposals do enough to protect savers' interests.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, says: "Exit penalties on outdated pension contracts have absolutely no place in the modern pension savings system. Capping these fees will provide significantly better choices for investors wishing to use the pension freedoms.
"However, this cap does not go far enough. The fee should be capped at 0 per cent and this would benefit a further 150,000 investors."
Richard Eagling, head of pensions at Moneyfacts, says although welcome, the 1 per cent cap could still be sizeable for many individuals. However, he also says the FCA has had to strike a balance between helping consumers and not penalising firms which risk not recouping set-up costs on legacy pension contracts they hold.
"It is, however, disappointing that the cap will not come into effect until 31 March 2017, almost two years on from the introduction of the new pension freedoms," he adds.
Mr McPhail agrees that this is too long a wait and has written to the FCA requesting that anyone who transfers their pension between now and March 2017 is able to reclaim exit fees.
Andrew Pennie, head of pathways at Intelligent Pensions, also thinks the proposals are a positive step and will help rebuild credibility in the pension sector. The cap should also encourage people to shop around, says Mr Pennie, citing FCA research showing that 58 per cent of drawdown investors and 64 per cent of annuity purchasers remain with their existing pension provider.
Not far-reaching enough
However, some pension experts are disappointed that the proposals do not cover certain areas.
Claire Trott, head of pensions technical at Talbot and Muir, thinks the cap on exit fees should not be restricted to the over-55s.
"It is a shame that [the cap] hasn't been extended to transfers for those under the age of 55 because there may be investors trapped in products that don't offer the full death benefit options, that would like to transfer, but are being held hostage by early exit penalties," she says.
Mr McPhail thinks it's unfair that the cap only applies to people using pension freedoms. "Those wishing to transfer old, expensive private pensions to improve their value for money, while they are still building their savings, will not benefit from the cap," he says.
"This penalises those who are doing the right thing by saving, but are hamstrung from making competitive choices which would help their hard-earned money work much harder."
The fact exit fees are being abolished on pensions, but established on the new Lifetime individual savings account (Isa) is inconsistent adds Billy Mackay, marketing director at AJ Bell.
He says: "On the one hand we have a proposal to set early exit fees on pensions at 1 per cent and at exactly the same time a proposal to introduce an early exit penalty on Lifetime Isas of 5 per cent.
The FCA's consultation is open until 18 August.
Many self invested personal pension (Sipp) providers, meanwhile, have reviewed their charging structures and devised new pricing models. A selection of Sipp exit charges are shown in the table below.
Platform Sipp exit fees
| Platform | Annual Sipp charges | Exit fees (closure fees* and transfer out fees) | Further information |
| Alliance Trust Savings | £155 + VAT p.a. for Sipp Account Savings and £230 + VAT for Sipp Account Income | Transfer out: £150 + VAT | http://www.alliancetrustsavings.co.uk/forms-documents/fees-charges/charges-guide.pdf |
| AJ Bell Youinvest | Annual admin fee 0.2% of fund value | Closure through drawdown or lump sums: £295 (only for Sipps opened after 6 April 2015). Transfer out to another pension scheme in cash, £75, transfer out in specie, £25 per olding (plus VAT) | https://www.youinvest.co.uk/charges-and-rates/sipp |
| Barclays Stockbrokers | Admin charges £155 + VAT p.a. | Closure through drawdown or lump sums) £75 for accounts opened before 6 April 2015, £250 for accounts opened after. Transfer out (cash or stock) £75 per transfer | https://www.barclaysstockbrokers.co.uk/Accounts/SIPP/pages/Rates-and-charges.aspx |
| Charles Stanley Direct | Transfer out £125+VAT + £10 per holding | https://www.charles-stanley-direct.co.uk/Our_Charges/#charges-2 | |
| Tilney Bestinvest | Management fee - 0.30% on £0-£250k, 0.20% on £250k to £1m, 0% on assets over £1m | Closure if held more than 2 years: £75, if held less than 2 years: £175. Transfer out as stock: £125, as cash: £75. To another pension scheme: £25 per asset | http://www.bestinvest.co.uk/the-best-sipp/low-cost-sipp-charges |
| Fidelity Personal Investing | From December 2015 an annual £45 fee for Supp customers with assets under £7,500 will replace the service fee | No charge | https://www.fidelity.co.uk/investor/pensions/fidelity-sipp/charges-fees.page |
| Interactive Investor | Annual account fee £20 per quarter | Closure: In cash £260 + VAT, in specie £360 + VAT . Transfers out: Free for 0-10 lines of stock if customer for <1 yr, £15 per line of stock after. Transfer out of pension benefits free for 12 months then £100 +VAT per transfer | http://www.iii.co.uk/sipp |
| Halifax Share Dealing | Quarterly admin charge £45 | Closure through drawdown: £300 (for accounts opened on or after 6 April 2015. For accounts opened before, £90 fee). Transfer out to another pension scheme: £90 + £25 per investment (max £215), transfer out of shares to another provider, £25 p. investment | http://www.halifax.co.uk/sharedealing/our-accounts/sipp/sipp-charges/ |
| Hargreaves Lansdown | Between 0.45% on assets of £0-£250 to 0% on assets over £1m | Standard closure: £25+VAT. Early closure: £295+VAT (when funds are paid asincome and account open for <12 months). Transfer to another provider as cash or stock: £25 | http://www.hl.co.uk/pensions/sipp/charges-and-interest-rates |
| iWeb | £45.00 | Closure through drawdown (accounts opened on or after 6 April 2015): £300 (£90 for accounts opened before 6 April 2015). Transfer out to another pension scheme: £90. Transfer out of shares to another provider: £25 p. stock, max £125. | http://www.iweb-sharedealing.co.uk/charges-and-interest-rates/sipp-charges.asp |
| TD Direct | Platform fee 0.30% on funds up to £250k to maximum £1,500 charged twice a year | No charge | http://www.tddirectinvesting.co.uk/rates-and-charges/ |
| The Share Centre | £172.8 annual fee | £250 + VAT | https://www.share.com/accounts/pensions/self-invested-personal-pension-sipp/account-overview/ |
| Trustnet Direct | Platform fee 0.25% per year capped at £200 (£221) | Closure through drawdown: £250+VAT. Transfer out £100+VAT plus £25 per account | https://www.trustnetdirect.com/account-charges |
Source: Investors Chronicle as at 1 June 2016
* Drawdown closure charges usually apply where flexi-access drawdown or uncrystallised funds pension lump sum payments reduce the value of your SIPP below £1000 within 12 months of opening
