Regulators have slapped a 1% early withdrawal cap on anyone taking money out of a pension before their retirement.
Financial firms were accused of taking an unfair slice of retirement savings from over 55s who took advantage of flexible pension freedoms.
Some imposed charges of between 5%and 12% of the drawdown payment as early exit penalties.
The government asked the providers to voluntarily stop charging the fees – and threatened to change the law if they did not.
Pension firms claimed their contracts allowed them to make the charges and vowed to carry on.
Good news for retirement savers
Now, the Financial Conduct Authority has ordered them to stop charging early exit fees of more than 1% from April 1, 2017.
The maximum fee from then will be 1% of the drawdown amount.
From April 1, any exit fees of less than 1% cannot be increased and providers will must not contract to early exit fees in new pensions taken out from that date.
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.”
Advisers must act in best interests of clients
The early exit fees are limited to 1% for all personal pensions where the saver is over 55 years old but has not yet reached the retirement age detailed in the pension.
Workplace pensions will also have an early exit fee cap of 1%, but this will not come into force until October 2017.
The announcement came with a warning for financial advisers not to move client retirement funds unnecessarily to protect charging structures and to consider giving the right advice for consumers even if that meant charging a lower fee.
“Where consumers seeking to access the freedoms do so with advice, we would expect advisers complying with our best interests rule and suitability requirements to take into consideration more than just the level of exit charges,” said an FCA spokesman.
