Income drawdown investors look set to be hit with a 55 per cent unauthorised payment charge if they buy an annuity or switch providers before 55.
Pension experts have slammed the “unintended consequence” of the minimum pension age rising from 50 to 55, claiming those in drawdown and under 55 could be stuck there until aged 55.
Richard Jacobs Pension & Trustee Services managing director Richard Jacobs says his client was invested in drawdown before the rule change and now wants to buy an annuity but HM Revenue & Customs will not allow it.
Sipp trade body the Association of Member-directed Pension Schemes has written to HMRC for clarification.
Jacobs says: “If you were 51 on April 5, you could have bought an annuity. We assumed if a client went into drawdown they would still be able to buy an annuity at a later date. People who went into drawdown for the right reasons but now want to reduce risk could be stuck for a few years.
HMRC has completely missed this unintended consequence.”
Axa head of pensions development Mike Morrison says: “This is ridiculous. Having started taking an income from their pension, surely they should be able to move to an annuity or switch providers. The industry is again caught out by something that does not appear to be the intention of the legislation.”
An HMRC spokesman says: “Most individuals who began income drawdown below age 55 before the minimum age went up are not at present able to use any of their drawdown fund to buy an annuity without incurring unauthorised payment charges. This restriction applies until the individual’s 55th birthday.”
HMRC could not comment further on whether it would be reviewing this as the department is in election purdah.