Will my pension provider have to cut its exit charge from April?

Michelle Cracknell
17 January 2017

Q

I have a question regarding the new 1% cap on pension exit charges.

I started a pension many years ago. On the statement for the year ending 2015 the transfer value is 11.2% less than the pension value quoted.

Am I correct in thinking it will not be able to charge this 11.2% after April next year?

From
RS/Bury St Edmunds

A

I’m afraid I cannot give an unequiviocal answer to your question without knowing your age or exactly what the 11.2% reduction relates to. It could be that the reduction in the value of your pension relates to other contract-related penalties such as a penalty for cashing in an
investment early.

However, you are right that from 31 March 2017, early exit charges for pension policies will be capped at 1% of the value of a member’s benefi ts being taken, converted or transferred from a scheme. This only applies when you are over age 55 and for contract-based schemes, that is a scheme operated with a pension provider. The alternative is trust-based scheme, where your employer operates a scheme, which is looked after by a trustee body.

A cap on exit penalties for trust-based schemes is expected to come into force from October 2017.

 

Market value adjustments (MVAs) for with-profits policies will continue to apply after March 2017. An MVA can apply when you access the benefits of your pension at a different time to the contractually agreed maturity date.

The adjustment applies where there have been market movements that have resulted in a significant change to the value of the underlying assets of the with-profits fund, which has not been taken into account in the bonuses awarded on the contract.