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Thousands risk HMRC pension freedoms fines

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Thousands of consumers are at risk of racking up HMRC fines as figures show few savers are aware of new reporting requirements.

Last year Money Marketing revealed plans for a new rule that meant people who accessed their pension savings would have been required to alert their providers to the fact they are entitled to a reduced £10,000 annual allowance.

The Government subsequently watered down the proposals so savers only have to inform providers they are still contributing to.

However, the £300 on-the-spot fine – which also increases by £60 a day until resolved – remains in place.

Yet providers report very few customers fulfilling the requirements, four months on from the introduction of the freedoms in April.

Standard Life and Aviva have each received around 120 notifications from customers, while Zurich have had less than 30.

Yet Association of British Insurers figures show £1.8bn was withdrawn from pension pots in April and May alone. This includes 65,000 cash withdrawals and 170,000 withdrawals from income drawdown policies.

Each customer accessing their pot for the first time needs to alert providers within 91 days.

Standard Life head of pensions policy Jamie Jenkins says: “What could easily be overlooked as a relatively trivial task may well result in a fine equivalent to having your car towed away. It’s imperative we make the signposting clearer than parking restrictions.”

Zurich head of retirement propositions Rod McKie says: “Pension providers already write to customers advising them to notify any other schemes, but the message doesn’t appear to be getting through. We don’t want to see savers receive unexpected fines by HMRC for taking advantage of the reforms.”

Dobson and Hodge director Paul Stocks says: “The problem is consumers don’t know what they don’t know. They don’t read the small print and this is a new detail that they are very unlikely to be aware of if. These things do need policing because you have that reduction in the annual allowance.

“I’d like to think HMRC don’t do things deliberately to catch people out, but in reality people don’t even realise there is a consequence and can get caught out by it.”

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. Even after being watered down this is still one of the most idiotic thorns in the pension freedoms legislation. It should be scrapped entirely.

    Anyone who breaches the lower annual allowance if it applies to them will be subject to an annual allowance charge, if they don’t pay it they will be fined. There is literally no need whatsoever for this fine for not notifying a provider.

    There’s hardly any point in notifying a provider in the first place. Someone could be saving £9,000 a year with one provider and £2,000 a year with another, or accruing benefits in a defined benefit scheme. The individual is responsible for making sure they don’t breach the AA, not the providers.

  2. It will soon waken these people up to a find a fine coming through the post and the word will eventually get through to the public. Ignorance is no excuse in the eyes of the law. Whether it is a ridiculous rule or not is irrelevant, it is another way of the HMRC getting more revenue out of their new cash cows so ridiculous doesn’t enter their heads

  3. HMRC could pose a blanket ban on any further contributions once any benefits or funds have been drawn from an approved scheme, though this might cause unfair problems for somebody still accruing benefits under an employer-sponsored scheme who merely wants to access the value of a small PP.

    As you say Sascha, reporting should be the responsibility of the individual. But if an individual is already contributing more than £10,000 p.a. when he vests one of his plans and just keeps going, how would HMRC know if he just keeps schtum and fails to report?

    Pandora’s box again….

  4. “Yet Association of British Insurers figures show £1.8bn was withdrawn from pension pots in April and May alone. This includes 65,000 cash withdrawals and 170,000 withdrawals from income drawdown policies.” If the majority of those making the withdrawals have also stopped contributing, these figures are irrelevant. The article contains no actual evidence of a problem.

  5. Ah shame – so Osborne isn’t snatching as much as he might. So let’s fine them instead. This is a Tory government isn’t it? I just wondered.

  6. I suppose if a system is complicated and complex, then people will be tripped up. i saw this article and immediately thought of another where a local council was issuing fines to those whose wheely bin lids were not quite shut!

  7. Christine Brightwell 10th August 2015 at 9:35 am

    Oh dear. Every time I look there is more “stuff” to deal with. Having a just woken up moment (literally). If an individual takes a lump 25% tax free out of their pension but not further pension for a few years does the £10,000 cap apply just for that tax year or for all eternity?

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