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L&G claims legal backing for rights cash despite DWP ban

Legal & General is marketing the option of paying tax-free cash from safeguarded rights despite the Department for Work and Pensions saying this is not allowed.

The company claims to have secured legal opinion giving it the go-ahead but has angered IFAs by refusing to divulge the advice.

In email correspondence with Intelligent Pensions technical director David Trenner, it says: “L&G is happy at how we have arrived at our stance regarding the availability of tax-free cash from safeguarded rights and, as I have said earlier, we are not willing to divulge this into the public domain.”

But a DWP spokesman says it is not possible to pay a tax-free cash lump sum on safeguarded rights, which are protected rights shared following a divorce.

A DWP document on contracted-out benefits issued in February states that subject to exemptions for ill health and where trivial commutation rules apply, “The Government’s general policy is that pension credit benefits (safeguarded rights) should not be used to provide lump sums.”

L&G senior technical manager John Gleadall says: “The legislation is confused and contradictory. It is absurd that safeguarded rights, unlike protected rights, are not treated like any other pension benefit.”

Trenner says: “If it turns out they are wrong, it is the IFAs who will carry the can.”

Standard Life marketing technical director Andy Tully says: “The legislation, backed up by the Government’s stated intentions, means that we cannot pay tax-free cash from safeguarded rights.”

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