Income drawdown investors will see 55 per cent of their entire pension wiped out if they switch providers or buy an annuity before 55 after HM Revenue & Customs significantly toughened its transfer stance.
The industry has been urging HMRC to soften its original interpretation of the legislation increasing the minimum retirement age from 50 to 55, which would have seen investors hit with an unauthorised payment charge of around 55 per cent on any income taken.
But after taking legal advice, HMRC is viewing such transfers as unrecognised transfers, subjecting the entire fund to an unauthorised payment charge of 55 per cent. Administrators could also be hit with a 15 per cent scheme sanction charge.
The Association of Member Directed Pension Schemes chairman Robert Graves says transfers that have already been made in good faith could now be deemed unrecognised and incur this higher charge. He says: “Amps is seeking urgent clarification of HMRC’s stance. This is a far more serious consequence than the situation where only income taken would be taxed.”
Talbot & Muir director Nathan Bridgeman says: “A client in a poorly-performing pension is effectively shackled to their existing provider.
The vastly increased tax charges – now applied to the entire fund value rather than the small portion that would be paid as income – make such a transfer inconceivable.”
An HMRC spokeswoman says: “’A transfer of an income drawdown fund to another provider for an individual aged between 50 and 55 would not be a recognised transfer and as such the transfer would be an unauthorised payment.”