During a Taxation of Pensions Bill committee hearing yesterday, shadow treasury financial secretary Cathy Jamieson repeated worries raised by the industry in MM about the penalties savers could be hit with when they access their pot from April 2015.
Under the proposals, pension schemes will be forced to write to clients who access the Budget freedoms within 31 days telling them when they accessed the flexibilities and the effect this will have on their annual allowance.
It will then be up to individual savers to contact all their other pension providers telling them they have accessed the freedoms under another scheme. Those who do not risk being hit with fines which could run into thousands of pounds.
Once an individual accesses the freedoms their annual allowance plummets from £40,000 to £10,000. The proposed system has been branded “unworkable” and the fines “harsh” by pension experts.
Responding on behalf of the Government, Treasury financial secretary David Gauke hinted policymakers could consider rethinking the proposals.
He said: “The Government are keen to work with industry and consumer groups, which will ensure that the requirements are proportionate and we will consider that issue further. The reporting requirements are designed to help individuals who have flexibly accessed their pension to understand the tax consequences of future pension savings that they can pay in tax charges due.
“We expect individuals to take reasonable care to ensure that they comply with the new requirements. Where an individual has, for example, forgotten that many years ago they were a member of a particular scheme, providing they have taken reasonable care, it is unlikely that HMRC would impose any penalties if they did not inform their provider that they have flexibly accessed their savings.”
Gauke added: “As with all legislation, we want to ensure that the Bill meets its purpose without imposing unnecessary burdens.
“Therefore, the Government will continue to talk with the pension industry, but if we believe it is right, we will make appropriate changes. We believe that the measure strikes the right balance at the moment, but we take an entirely practical and pragmatic approach to evidence that might emerge in future.”