Plans to clamp down on early exit charges for people using new pension freedoms have been set out.
The Financial Conduct Authority (FCA) has proposed that exit charges should be capped at 1% of the value of the pot.
Early exit fees may be charged when someone transfers or takes their pension benefits after the age of 55 but before their selected retirement age.
The proposals apply to existing contract-based personal pensions, including workplace personal pensions. The FCA said firms will not be able to apply any exit charge for personal pension contracts entered into after the proposed new rules come into force.
Christopher Woolard, an FCA director, said: “Together with the ban on exit fees in future contracts, we are proposing a 1% cap on exit charges in existing contracts to ensure people can access their pension pots without being deterred by charges.
“This is an important step so people feel able to access their pension savings should they wish to.”
Introduced last year, the new freedoms give people aged 55 and over a wider range of choices over how they use their pension pot, rather than being required to buy a retirement income called an annuity.
But there were concerns over high charges acting as a barrier to some people using the freedoms how they wanted.
The Department for Work and Pensions has also launched a consultation to prevent people in occupational schemes facing exit charges for accessing their pensions early. The consultation closes on August 16.
Chancellor George Osborne said almost a quarter of a million people had already taken advantage of the Government’s pension freedoms.
“I want everyone to have the same opportunity, including people who are eligible but currently face some sort of early exit fee.