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Govt admits drafting error in pensions advice allowance

The Government has removed a rule that would have meant those using its new tax-free pension advice allowance Error in the current Pension Schemes Billcould have lost their tax free cash protection.

HM Revenue and Customs has admitted to a drafting error in the rules first flagged by Money Marketing in April over how the pensions advice allowance – which was introduced from 6 April to allow consumers to access up to £1,500 early from their pension pots to fund retirement – would be treated.

The rules had originally read: “Payment of a pension advice allowance in respect of the member without them becoming entitled to all pension and lump sum rights on the same day results in their scheme specific lump sum protection being lost.”

This implied that unless the consumer accesses the rest of their pension rights at the same time, they could lose pre-A-day protections including the right to enhanced tax-free cash.

Gov’t unclear over pensions advice allowance take-up

An HMRC spokesman said that because scheme-specific lump sums affect members in pre-A day schemes, the wording would mainly affect schemes that are unlikely to offer the pension advice allowance.

An update to the Government’s pensions tax manual now reads: “Incorrect wording inserted at last update (7 April 2017) re. effect of pension advice allowance payment has been removed.”

The pensions advice allowance allows £500 to be accessed in three separate tax years. It can go towards robo-advice or face-to-face retirement advice, but cannot be used to fund advice on non-retirement elements, including inheritance tax planning, according to the Government’s rules.

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  1. This is yet another example of the pitfalls attendant on knee-jerk regulation changes. If HMG cannot understand their own rules what hope is there for the consumer? It truly is time that we had some continuity with pensions rules and regs. I almost thought that we were getting somewhere with Steve Webb but that did not last long.
    Chris Boylan

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