The Association of British Insurers has attacked the Government for failing to clarify rules around tax-free lump sums following Chancellor George Osborne’s radical pensions overhaul.
Changes announced in last week’s Budget mean that from April next year anyone aged 55 or over will be able to take their entire pension pot as cash.
In response, a number of providers have extended their annuity “cooling off” periods to give customers more time to decide whether or not they want to reverse their decision to purchase an annuity.
However, providers say HMRC rules currently prevent them returning tax-free lump sums to people who have recently decided to buy an annuity.
ABI director of policy Huw Evans says the industry needs “urgent clarity” from the Revenue over the issue.
He says: “Pension and annuity providers were given no advance warning ahead of the Budget changes that came into effect within a 10 day period and have been working round the clock since to help customers understand their choices.
“The Government’s announcement introduced a cliff-edge for customers and it is wholly unacceptable that a week after the Budget HMRC has still not clarified the rules around whether tax free lump sums can be reversed for those customers who have just annuitised and wish to change their mind.
“The current HMRC rules state that this is an irreversible benefit – yet providers, customers and financial advisers need clarity urgently if they are to navigate the current situation.
“Insurers remain committed to working with each other closely to help customers who wish to exercise their ‘cooling off’ rights but needs the Government to do its part to recognise the urgency of clarifying the post-Budget situation it has created.”