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Govt criticised over ‘harsh’ Budget freedoms disclosure penalties

Experts say the Government must rethink a new requirement for individual scheme members to alert providers when they access the Budget pension freedoms.

The Taxation of Pensions Bill, published last week, revealed details on the tax changes that will underpin the Budget reforms. And today Money Marketing revealed how individuals could face fines in the thousands of pounds if they fail to comply.

But pension experts say the level of the fines are “harsh” and urge HMRC to be lenient on unsuspecting members.

Under the additions to the Bill, when a member chooses to use the freedoms, their provider or scheme must issue a statement to them within 31 days. The member in turn must contact all their other existing schemes and providers, alerting them to the fact that the annual allowance restrictions have come into effect, also within 31 days.

Talbot & Muir head of technical support Claire Trott has branded the rule “unworkable” and the fines “harsh”.

She says: “The reporting isn’t necessarily going to stop people over-contributing so all this emphasis on the member having to report to all the individual parties seems excessive.

“I don’t think it’s going to necessarily help anybody in any way, shape or form – it just seems another bureaucratic exercise. To bring in fines just seems harsh – £300 is not a huge amount, but £60 a day after that racks up quickly. What happens if you go on holiday for two weeks?”

MGM Advantage pensions technical director Andrew Tully says the requirement is “overkill, potentially exposing many thousands of unaware people to financial penalties”.

AJ Bell technical resources manager Gareth James says he hopes HMRC uses its discretion to charge less than the limits set out in legislation.

He says: “You would hope it would take a proportionate stance if an individual had reasonable grounds for failing to meet the timescales or where they had no intention of contributing more than £10,000, meaning any failure to notify other pension schemes that they had made use of the pension freedoms was meaningless.”


Legal & General pensions strategy director Adrian Boulding says the tax office must step in to “mop up people who break the rules”.

Boulding thinks the tax office should treat the requirement in a similar way to Isas. He says: “Large numbers of people take out two Isas a year – they’re not doing it fraudulently – and HMRC has a process that discovers all those people and they go back to the second provider and tell them to correct the mistake. We’re going to need to have this here.

“At the end of the day, only the individual knows how many pension schemes they are a member of. As a provider, I don’t know how many other arrangements they’ve got. There’s a clear need for a Revenue process so those customers who don’t understand the rules – and this is very complicated – have it corrected if they pay too much.”

Tully suggests a “declaration approach”, where members planning to pay in £10,000 tell the administrator if they are contributing to another scheme.

Rathmore Financial chartered financial planner Floyd Fombo supports this idea. He says: “Some people may not know all the pensions they hold. There is also the issue of closed providers and who the member should contact.

“Finding the appropriate department can be difficult, even for an experienced adviser. How will Joe Public work through that without losing the will to live?”

The Bill also introduced a cut, to £7,500, in the amount of tax-free cash that can be recycled through a pension scheme.



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There is one comment at the moment, we would love to hear your opinion too.

  1. Thereby adding another cost to running the schemes as providers will need to amend their systems to record this information.

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