Savers who take their tax-free lump sum before next April have been given longer to decide what they will do with the rest of their pension pot.
The Budget reforms which allow savers to take their entire pension pot as cash once they reach 55 come into effect in April 2015.
Currently, once somebody takes their tax-free lump sum they have to decide what to do with the rest of the pot within six months.
HM Revenue & Customs guidance, published this morning, sets out interim rules in this year’s Finance Bill that extends the window in which people have to decide what to do with the remainder of their pension pot until 6 October 2015.
It says: “To enable people to take full advantages of the new flexibilities, this period has been extended for money purchase arrangements in prescribed circumstances, so providing the entitlement to the associated pension occurs before 6 October 2015, the [tax-free lump sum] will be an authorised payment and remain tax-free.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “It gives people breathing space to decide what they are going to do, and by then all the insurers might have got their ducks in a row and be providing products that can do this kind of stuff. Bear in mind a lot of them today can’t even do flexible drawdown.”
The changes are being introduced in this year’s Finance Bill and will apply to anyone who takes their tax-free lump sum between 19 September 2013 and 6 April 2015. It will also apply to those who took a lump sum before 19 September 2013 and decided to take out an annuity, but later cancelled in the wake of the Budget.
Those who meet those conditions will also be able to return their tax-free lump sum before 6 October 2015 and not incur a tax charge.
This is intended to addresses concerns from the Association of British Insurers that those who have purchased an annuity and chose to cancel it in light of the Budget could not return their tax-free lump sum.