Thousands of flexible drawdown savers risk sleepwalking into reporting fine

Advisers need to warn clients already in flexible drawdown about the prospect of fines running into thousands if they fail to meet HMRC reporting standards, AJ Bell warns.

Savers who access their pension flexibly from 6 April will have a reduced money purchase annual allowance of £10,000.

Once they contribute they are required to tell other schemes they are contributing to that they are subject to the allowance using information given by their provider.

Following Money Marketing coverage the Government U-urned and loosened the requirement, but savers could still rack up fines in the thousands.

People in existing flexible drawdown contracts, who previously had no annual allowance, will also be able to contribute up to £10,000 tax free. However, there is no requirement for providers to tell these customers about the reporting requirements.

AJ Bell technical resources manager Gareth James says: “There are potentially tens of thousands of savers in flexible drawdown who have not been able to make contributions for a number of years who will suddenly be able to pay up to £10,000 to money purchase schemes. This will be attractive to many, but will come with a sting in the tail in the form of a HMRC fine if they fail to meet the reporting requirements.

“We will be communicating with advisers who have clients in this situation to make sure they are aware of the requirements, I would hope that other providers will do the same. It would be optimistic for HMRC to assume that all providers will, or that savers will somehow know about the reporting requirements without direction of some sort.”

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Comments

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

  1. In connection with this, I thought that it was interesting that during a debate in Parliament on these measures, the Minister assured MPs that HMRC would not normally seek to impose the maximum penalty of £300 on individuals unless the failure is deliberate.

    I wonder if HMRC have been told?

    In simular situations pre A-day, HMRC’s policy was automatcially to issue a letter carefully crafted to look like a notice of a £300 fine. In reality it was an invitation to the tax payer to cough up £300 so that HMRC can close the case without it going to the special commissioners and the tedious process of establishing whether there are any mitigating factors. And to encourage the tax-payer to play ball, there were some very misleading rumblings about their ability to levy additional £60 a day penalties.

    I would hope that they would take a more enlightened approach now – but are they sufficiently resourced to do so?

  2. @Sis – Probably somewhat like the FCA penalty for failure to pay the interim FSCS levy within 28 days of the emailed invoice of £250 even if you are 1 day late.

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