Hogan Lovells

Key Dates

Consultation response and final regulations issued on 3 July 2017.

The Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2017 intended to come into force on 1 October 2017.

The DWP intends to issue guidance on how market value adjustments and terminal bonuses are to be treated at the time the regulations are laid.


Summary

The DWP has published a response to consultation on draft regulations to impose a cap on early exit charges in money purchase occupational schemes (or in relation to money purchase benefits in mixed benefit schemes) for members who wish to access the pension freedoms. Power to restrict charges is included in the Pensions Act 2014, as amended by the Pension Schemes Act 2017. Following consultation, the draft regulations have been amended slightly in response to minor technical points and requests for clarification.

(The regulations will also extend the ban on member-born commission to charges under existing contracts (please see separate entry)).

The cap on "early exit charges" will apply to charges imposed on members (aged between 55 and their pension age when seeking to take benefits under their scheme, convert their benefits into different benefits under the scheme or to transfer benefits to a different pension scheme which they would not face if they carried out the same transaction at the agreed pension age for their scheme.

The cap on early exit charges from occupational schemes will be:

·         for existing members at 1 October 2017: 1% of the value of the benefits being taken, converted or transferred (to be calculated in accordance with guidance issued by the Secretary of State); and

·         for members who join their scheme on or after 1 October 2017: 0%, that is a complete ban.

Compliance

Service providers must confirm in writing to the trustees or managers of a relevant scheme that they are complying with the restrictions on early exit charges within one month of:

·         1 October 2017 or, if later,

·         the date on which the service provider becomes a service provider in relation to the scheme.

 Personal pensions and stakeholder schemes

A similar cap on early exit charges applies to stakeholder and personal pension schemes. The Financial Conduct Authority (FCA) brought rules containing the cap into force on 31 March 2017.

Background

In the 2016 consultation and response to consultation, the DWP explained that:

·         Market value adjustments (MVAs) and terminal bonuses will not be included in the cap. However, the DWP commented that where there is a guarantee or "reasonable expectation" of a terminal bonus being paid, then for the purposes of the cap on charges, this should be treated as forming a part of the total value of the member's pot.

·         Charges associated with accessing one of the options for drawing benefits will not be "early exit charges", if they would apply whether the member was accessing the option at the scheme's agreed pension age or earlier.

It was not intended to require that the exit cap be disclosed to members, but this will be kept under review.



Date Accessed: 03/12/2021