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New HMRC guidance clarifies adviser charging rules

HM Revenue & Customs has circulated draft guidance to providers clarifying how adviser charging can be applied for personal and group pension schemes.

The guidance, seen by Money Marketing, addresses a number of issues raised by the industry when the Revenue sought feedback on draft adviser charging rules.

HMRC is set to reverse plans to deduct a portion of an adviser’s fee relating to ‘wider pensions advice’ from a client’s tax free cash allowance.

In its last draft rules, the Revenue created a distinction between an adviser charge relating to lifetime annuity advice and a charge relating relating to wider pensions advice, such as drawdown.

Under this approach, the adviser charge relating to wider pensions advice would impact on a client’s available tax-free cash.

At the time, Syndaxi Chartered Financial Planners managing director Robert Reid said: “This almost puts an IFA off looking at the total range of things available at retirement.

“On the one hand, we have pressure from the FSA to consider all the options for clients but if we do that, it will have a direct impact on the individual’s tax-free cash.”

It was also feared HMRC’s proposed approach could complicate shopping around at retirement because if an individual decides to switch provider when they buy an annuity, the tax-free cash is paid by their original provider.

As a result, the client’s new provider would have needed to contact the previous provider and request they pay a portion of the adviser charge from the tax-free cash to the adviser.

However, the new draft guidance says: “A registered pension scheme might make a payment to a financial adviser for the cost of pension advice that is given to the member by the financial adviser in relation to the pension scheme.

“Such pension advice might be in connection with the suitability of fund choice, asset allocation, pension provider, pension taxation or checking against statutory limits.

“Also, the advice could cover how to maximise income from the pension fund at retirement or how to maximise the return on existing pre-retirement pension fund or more general advice on the payment outcomes/risks of respectively choosing the type of pension to be taken; scheme pension, lifetime annuity or drawdown.”

As a result, if an adviser charged £500 for advice on the pension options for a member with a £100,000 fund, a tax-free lump sum of £25,000 will still be available, with the charge taken from the remaining £75,000 after it is passed to the annuity provider.

Reid says: “I am really pleased HMRC has listened to the concerns I raised over tax-free cash and adviser charging and taken a practical approach.”

HMRC also plans to clarify how an adviser can levy a consultancy charge on a group personal pension scheme.

The Revenue’s draft guidance had led to confusion about how a consultancy charge would be applied if only a portion of the employees advised decide to join the pension scheme.

However, the revised guidance makes clear that any consultancy charge will be paid by employees who join the scheme.

It says: “An employer might take financial advice in relation to setting up a personal pension scheme or group personal pension scheme and the cost of that advice is met from the funds of those employees who join the pension scheme.”

A J Bell technical resources manager Gareth James says: “Advisers and providers were quick to point out that HMRC’s initial guidance failed to reflect the reality of the market. The new guidance is sensible and it is positive that HMRC has listened to industry concerns.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Simple I won’t be giving any pension advice after Dec 2012.

  2. tracy holdstock 12th July 2012 at 9:40 am

    Expected this for some while BUT very confusing that this page from HMRC: STILL has the old calculation where the charge impacts the pension commencement lump sum! Lets see the draft guidance please!

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