The Financial Conduct Authority is to cap early exit charges on existing pensions at 1% and from 31 March it will bar all early exit charges on new pensions.

Announcing its final rules on capping early exit charges for consumers eligible to access the Government’s pension reforms from age 55, the FCA said today that from 31 March 2017, early exit charges will be capped at 1% of the value of existing contract-based personal pensions, including workplace personal pensions. Early exit charges that are currently set at less than 1% may not be increased, says the FCA.

It has gone further and added that firms will not be able to apply an early exit charge to personal pension contracts entered into after these rules take effect.

There had been concern in the industry and from consumer groups that punitive early exit charges were being levied against the interests of consumers. The FCA and the Government had been concerned that the charges would deter people from accessing their pensions from age 55 if they wished to do so and would undermine the pension reforms which allow consumers to access most pensions from age 55.

Christopher Woolard, executive director of Strategy and Competition at the FCA, said: “People eligible for the Government’s pension reforms should feel able to access them as they wish. 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.”

The FCA was given both the “power and duty” to cap early exit charges by Parliament through recent amendments to the Financial Services and Markets Act (2000). The purpose is to ensure that these charges do not deter consumers from accessing the pension reforms introduced by the Government, says the FCA.

Feedback on the policy changes was covered in FCA paper: Capping early exit pension charges: Feedback on CP16/15 .

The Department for Work and Pensions conducted a separate consultation on 'Capping early exit charges for members of occupational pension schemes' and is expected to publish its response today.