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Govt urged to ditch new pension withdrawal option

Aegon has urged the Government to drop its plans to introduce “uncrystallised funds pension lump sums” amid concerns the new option will create “unnecessary complexity” for savers.

Last month, HM Revenue & Customs revealed details of the proposed new pension withdrawal mechanism as it set out tax measures that will accompany the Budget reforms.

The new option will allow scheme members to take a portion of their pot – with 25 per cent tax-free and the rest liable to income tax – as an “uncrystallised funds pension lump sum”.

These withdrawals will not force the member to allocate the remainder of their savings to a drawdown vehicle or an annuity within six months of taking their tax-free lump sum.

In its response to the HMRC consultation, Aegon says the uncrystallised lump sum option “brings unnecessary complexity to a largely unengaged and unprepared UK population”.

The provider adds: “We also believe it could significantly damage the effectiveness and credibility of the untested guidance guarantee.

“We believe the guidance guarantee, as currently envisaged, would have serious difficulties in explaining, let alone differentiating between, the two options, and the complications surrounding them. Customers, unless advised, run the risk of choosing the wrong option as they will be faced with a barrage of information which will be meaningless to them.”

Aegon says if customers want to cash in their pension savings, they can use the flexi-access drawdown option set to be introduced in the Taxation of Pensions Bill.

Standard Life has previously raised concerns savers could be stung if UFPLS were adopted as a scheme’s default option.

Standard Life head of customer income solutions Alastair Black says: “We wouldn’t call for them to be scrapped. They are a useful feature, and could be used by providers as an interim step towards offering flexi-access drawdown. However, it is important customers understand there are potentially better options.”

Scottish Widows head of pensions market development Ian Naismith says his firm is “quite supportive” of the UFPLS option.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. It would allow people to pass their residual fund to relatives without taxation if uncrystallised would it not?

    That’s a good thing, but not from HMRC’s perspective, so why would they want to encourage such a move?

  2. I took a 25% portion of my pension in November 2008 and completed various amounts of paperwork on the advice of my so called professional advisor. (They turned out to be far from professional).
    Subsequently i was advised last year when i wanted to take the remaining portion of my pension in a lump sum and retire that i couldn’t as i had been allocated a monthly annuity, which i actually didn’t want nor did i request. The facts were not clearly advised to me at the time and although i signed the paperwork, i did not fully understand the negative consequences and the totally adverse effect this would have on me at a later stage. Have i any redress under the new proposals to somehow obtain the remaining portion of my pension pot, which is a substantial figure. I have spoken with the FOS, with no luck.

  3. The option of someone taking an UFPLS is one of the most useful proposals in the Budget (from a tax planning point of view) given that if provides the option of taking the income that is required (perhaps bringing them up to a tax threshold) whilst retaining the balance of the ‘pot’ pre-retirement and therefore (under current rules) generally free from IHT and growing in a tax efficient environment.

    As far as I’m aware, there are providers that already do this …. albeit the ‘post-retirement pot’ is then caught by the current restrictions of GAD etc.

    Pensions themselves are simple – it’s the legislative world they have to operate it which makes it comlicated …. but giving the client the option of only drawing a part of their pension is (IMHO) hardly rocket science!

  4. Tricky D – I suspect that if FOS don’t want to know you have little chance of getting any redress. Have you made a formal complaint to the adviser in question? If not it may simply be that FOS will not get involved until the adviser has evaluated the complaint and responded.

    Presumably you have been receiving an income from the annuity for the best part of six years. Were you unaware of where this was coming from and was it not explained in the suitability report?

  5. Tricky D – I suspect that if FOS don’t want to know you have little chance of getting any redress. Have you made a formal complaint to the adviser in question? If not it may simply be that FOS will not get involved until the adviser has evaluated the complaint and responded.

    They might also think someone setting up a drawdown where income (they say they didn’t want) is paid for 6 years but only a problem now the new rule is coming (April 2015) in is no reason to think there ever was a problem. They may of course agree this was bad advice but if all that has changed is the fact they now want to unlock the rest of their pot I doubt this will get very far.

  6. @Tricky D

    6 years ago your options would have usually boiled down to either a drawdown plan or an annuity (i know i am simplifying). Either way, subject to rules 6 years ago, once you had received your 25% of fund as a lump sum accessing the remaining fund as a lump sum was not an option. It was only in March 2014 that access to your remaining fund became an option.

    As mentioned by Jinker and Neil Walker converting your pension fund into an annuity would have resulted in the monthly income payment almost immediately. Surely you noticed this extra income! Having said that if you feel that the differences between drawdown and annuities were not properly explained at the point of sale then complain to your adviser. If they decline your complaint then refer it to the FOS as is your right.

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