The Department for Work and Pensions (DWP) has launched a consultation on draft regulations regarding the cap on early exit charges for occupational pension schemes and restrictions on member-borne commission payments.
The consultation, which will run until 31 May 2017, seeks views on the draft Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2017.
These regulations would restrict early exit charges for members of workplace pension schemes to enable eligible members over the age of 55 to take advantage of the pension freedoms. The proposed cap is 1% of the value of the member’s benefits being taken, converted or transferred for existing members of occupational pension schemes, and a ban for new members of these schemes.
The cap is in line with the Financial Conduct Authority (FCA) cap on early exit charges for personal and stakeholder pensions, which came into force on 31 March 2017. This followed a consultation that ran between 26 May and 18 August 2016. The DWP ran a similar consultation for occupational pensions between 26 May and 26 August 2016. Responses to both consultations have been taken into account for the draft regulations, which are set to come into effect from October 2017.
The draft regulations that are the subject of the current consultation also aim to prohibit charges that are imposed on members of some occupational pension schemes to recoup the cost of commission payments to advisers in relation to agreements entered into before 6 April 2016.
These proposals align with FCA rules that ban commission in workplace personal pension schemes used for auto-enrolment purposes from April 2016.
The draft regulations will not prevent providers from imposing member-borne charges to recover the cost of initial commission charges paid to advisers under contracts entered into before 6 April 2016 and paid for before 1 October 2017. However, the draft regulations will prevent member-borne commission charges that cover the cost of ongoing payments to advisers after the regulations come into force.
The ban is designed to ensure the consistent treatment of members across all workplace pension schemes, as well as to reduce member charges.
The consultation seeks views from pension industry bodies and professionals, trustees or scheme managers, pension scheme members and beneficiaries, as well as employers and representative organisations.
Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “These rules will ensure all workplace pension members, regardless of the plan chosen by their employer, are treated the same when the time comes to access their retirement savings.
“The obvious beneficiaries are pension savers who need access because they are finishing work early. This is also a huge boost to those looking to control their run in to retirement.”