The Department for Work and Pensions (DWP) has confirmed it will ban early exit charges for savers eligible to access the pension freedoms.
In its response to its consultation on The Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2017, the DWP confirmed that, from 1 October, employees who join a pension scheme will no longer be required to pay to access their pensions under Freedom and Choice, while members of a pension scheme before this date will have these fees capped at 1%.
The rule change is designed to bring legislation in line with Financial Conduct Authority (FCA) rules, introduced in November last year, which capped early exit charges at 1% from 31 March this year.
There will also be a ban on charging members of occupational schemes used for auto-enrolment (AE) in order to recoup commission payments made to advisers after 1 October 2017, and related to agreements entered into before 6 April 2016.
This follows the government, in 2014, banning member-borne commission payments to advisers for schemes used for AE from April 2016, after the Office of Fair Trading (OFT) noted this acted as a barrier to switching schemes.
The new rules are designed to remove hurdles savers often find when they attempt to access their funds via the pension freedoms.
The regulations will also allow the Secretary of State to issue guidance on how members' benefits should be valued for the purpose of determining a cap on early exit charges. There is an intention to issue guidance on market value adjustments and terminal bonuses when it is introduced to parliament.
The move comes after a two-month consultation with the industry, which found broad approval across its respondents.
The regulations are expected to be laid before parliament after the summer recess, and then due to come into force on 1 October.
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