Revenue admits drawdown error
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HM Revenue & Customs has apologised after incorrectly telling LV= that income-drawdown investors could switch providers or buy an annuity before the age of 55 without facing an unauthorised payment charge.
HMRC confirmed last week this is not the case and that these investors would face a 55 per cent tax charge, contradicting earlier email correspondence with LV=.
LV= asked the Revenue: “If the member wishes to use his unsecured pension fund after April 6, 2010, but before reaching age 55, to purchase a lifetime annuity, will the annuity payments, paid before the member reaches age 55, be authorised payments?
“We understand a number of other providers have been told by HMRC, in response to the same question, a lifetime annuity could not be purchased until the member has reached age 55.”
In response, HMRC said: “If the member had commenced an unsecured pension at 50 before April 6, this would not be affected by later converting to a lifetime annuity or transferring to another scheme.
“If you have examples of this office responding differently, I would be interested to see this.”
Last week, the FSA suggested IFAs are to blame if clients are stuck in drawdown or face tax charges due to the rise in the minimum retirement age, warning they should brace themselves for complaints.
LV= head of pensions Ray Chinn says: “We have received an apology from HMRC but customers may still face a tax charge despite providers and advisers acting in good faith. HMRC should address this immediately and the FSA and the FOS should take this confusion into account when looking at complaints.”
A HMRC spokeswoman confirmed that a tax charge would be applied in such cases. She says: “Where any incorrect guidance has been given, we will correct the position as soon as we became aware that we have done so and apologise for any inconvenience this may have caused.”
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