The Treasury has scrapped requirements on savers to contact all previous pension providers when accessing new freedoms in a major policy U-turn.
Under Taxation of Pensions Bill amendments tabled just last month, savers were told they must contact all their existing pension providers within 31 days of accessing new freedoms.
The Treasury wanted savers to inform providers of the tax implications because when flexible pension pots are accessed the annual tax relief allowance is cut from £40,000 a year to £10,000. But experts told Money Marketing the rules were “unworkable” and would have created “chaos”.
In amendments tabled by Chancellor George Osborne today, the Government proposes savers will only need to contact providers who they are currently contributing to or those which they contribute to in the future.
In addition, individuals will have 91 days to contact the providers they are contributing to.
But thousands of savers could still face a £300 fine if they miss the deadline, with £60 for each subsequent day. In addition they will be fined £3,000 if they submit inaccurate information.
The proposals came under fire from Labour in parliament when the party quoted Money Marketing articles.
In a letter to Taxation of Pensions Bill committee members, seen by Money Marketing, Treasury financial secretary David Gauke says: “At committee stage of the bill honourable members raised reporting requirements individuals would have to meet for the new annual allowance.
“This issue was also raised in written evidence to the committee. The bill currently places a requirement on individuals to access their pensions flexibly to inform all schemes that they are a member of that they are subject to the £10,000 annual allowance within 31 days of accessing their pension flexibly. Failure to comply could in theory lead to a £300 fine.
“Following the debate to the committee and giving careful consideration to the issues the Government has brought forward an amendment to the bill that changes the reporting requirements so individuals would only be required to tell schemes for which they are currently contributing or subsequently contributing to that they are subject to the new £10,000 allowance.
“These amendments also change the length of time individuals have to comply with this requirement to 91 days.”
Shadow Treasury financial secretary Cathy Jamieson says: “The Government finally caved in from pressure from Labour on fees and charges in pension saving schemes, and now they are being forced to follow Labour’s lead on arrangements for people accessing the new freedoms.
“I told the Government that placing a requirement on individuals who had flexibly accessed their pensions to contact all their pension schemes was disproportionate, as it would have left people searching for paperwork for schemes they may not have paid into for years.
“The Government now needs to ensure that a robust guidance guarantee is in place and that people are not hit by excessive charges.”