The Government has tabled proposals to scrap tax relief for compensation payments on pension misselling.
A Treasury consultation, published last week, also reveals plans to remove 35 other tax reliefs.
The axe is set to fall in the Finance Bill 2012. The decision is subject to transitional arrangements to minimise the impact. The Government says the transition period will be at least five years, in which open cases could be resolved using the old rules.
The Treasury concedes the reform could present problems for advisers who have guaranteed to review a compensation application when a client reaches retirement. It says: “The number of individuals who have yet to receive compensation is not yet known. Some advisers may have provided a guarantee to review the application for compensation when the pension holder reaches retirement and only then make good any financial loss suffered.”
MGM Advantage technical manager Andrew Tully says: “The Treasury is effectively kicking any future pension misselling victims when they are down. It would be sensible for advisers who have outstanding compensation cases to get the money in before the change comes into effect.”