HMRC will not budge on drawdown trap
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HM Revenue & Customs has confirmed that income drawdown investors aged between 50 and 55 are unable to buy an annuity or switch to another drawdown provider without facing a 55 per cent unauthorised payment charge.
Money Marketing revealed recently that the pensions industry was seeking clarification from HMRC on the matter.
In a note to Sipp trade body, the Association of Member Directed Pension Schemes, yesterday, HMRC said that any pension benefits paid by the new scheme following a recognised transfer of sums and assets, under pension rule 1 in s165 FA 2004, need to meet the prevailing normal minimum pension age of 55.
Amps chairman Robert Graves says: “Amps considers this to be extremely disappointing, given that it flies in the face of common sense, fairness to the consumer and one might argue, policy objectives. Amps will keep this issue on its issues agenda and raise at future opportunities.”
AJ Bell marketing director Billy Mackay says: “This ruling lacks any common sense. Any client who transfers and receives income now faces unauthorised payment charges which effectively traps them in the dated existing plan until age 55.”
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Readers' comments (4)
Anonymous | 11 May 2010 11:17 am
Seems like "treating clients fairly" doesn't mean "treating citizens fairly"
sounds like pre planned retrospective legislation !
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Anonymous | 11 May 2010 12:00 pm
This is absolutely absurd. How can IFAs review these plans in the interim period when the only option available to the client is to either reduce or increase income and / or switch funds within the current providers fund range. It is wholly unfair that younger clients who may for a variety of reasons need to purchase an annuity are restricted by a lack of common sense from HMRC.
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Martyn Sinclair | 11 May 2010 1:40 pm
no difference to being told when reaching age 50 that you are no longer permited to take benefits from a personal pension becuase the minimum pension age has risen from 50 to 55. This depsite the pension policy document showing an SRA age 50 for the past 12 years!
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Sean | 12 May 2010 8:40 am
Martyn there is a big difference. These people have already retired and if as a result of a change of circumstances when to guarantee income by annuity purchase they are unable to do so. Although you would wonder why someone would go into drawdown and want to change either providers or purchase an annuity within 5 years of setting the plan up.
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