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ABI attacks Govt over pension tax-free cash confusion

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.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. So we have another Omni-shambles?!

  2. Reading between the lines tends to infer that the continual inability of Government, Regulator and HMRC to work together effectively is due to the fear of leaked information. The better question is whose interests are being served by failing to work together? which we see time and time again, irrespective of who is in “power”. Expecting a “heads up” is considerable delusional thinking from the ABI. All three bodies are meant to be public servants working for our collective greater good, (yes now I’m the delusional one) yet the squabbling and blaming would suggest rather chaotic, broken relationships.

    We need clear and frankly simple rules to follow for tax and pensions. Reform should go much further, scrapping the lifetime allowance, revert to tax years rather than input periods and lets just agree one rate of tax relief as the incentive to actually save… the same rate as the PCLS (hate that term too) and probably restrict tax year contributions to inflation linked earnings cap for everyone except active DB members (how much time is wasted requesting and preparing annual allowance calculations?) Just deal with it once and for all. Anyone getting too worked up about loss of higher rate relief has options for ISAs, VCTs, EIS and so on, (end of rant).

  3. This position is frustrating (for the imminent annuitants) and occasionally HMRC do apply liberal interpration to legislation to offer practical solutions to changing penison landscape (I am thinking of the age 50 to age 55 drawdown transfer fiasco). However, I wonder what proportion of these people who thought annuitisation was the correct thing to do on 18 March now think it was not the correct thing to do (and so don’t need the security of guaranteed income for life). Answering myself, I guess those that may now want to change may simply be more aware of the alternatives to annuitisation given the mainstream publicity that the budget attracted. @andrewddroberts

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