Cap on early exit charges

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Cap on early exit charges
  • What is an early exit charge?
  • The statutory definition for personal and stakeholder pension schemes
  • The statutory definition for occupational pension schemes
  • Why do early exit charges matter?
  • Government decision to impose a cap on early exit charges
  • Framework for personal and stakeholder schemes
  • Scope of the cap
  • Implementing instrument
  • Framework for occupational pension schemes
  • More...

Cap on early exit charges

Since 31 March 2017, a cap applies to early exit charges in personal pension schemes and stakeholder pension schemes. This cap extended to occupational pension schemes with effect from 1 October 2017.

What is an early exit charge?

Broadly speaking, an 'early exit charge' is a fee or charge incurred by individuals on the value of their benefits being taken, converted, or transferred from one fund to another before normal retirement date.

The statutory definition for personal and stakeholder pension schemes

In the context of personal and stakeholder schemes, the term 'early exit charge' is statutorily defined in the Financial Services and Markets Act 2000, s 137FBB (FSMA 2000) as a charge imposed on a member who, having reached normal minimum pension age, arranges to take, convert or transfer their benefits before normal retirement date. The definition makes it clear that a charge is not an early exit charge if it also applies when taking, converting or transferring benefits on or after normal retirement date.

The Financial Services and Markets Act 2000 (Early Exit Pension Charges) Regulations 2016, SI 2016/1079, further specify that market value adjustments (MVAs) in personal pensions are excluded from the definition of 'early exit charge'. MVAs are reductions that may be made to the nominal value of a member’s pension benefits when they exit a pension scheme early in order to more closely align them with

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