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Treasury waives annuity rules to resolve tax-free cash confusion

The Treasury has waived the requirement for pension savers to buy an annuity within six months of taking their tax-free lump sum after criticism from insurers.

It is an interim measure to ensure anyone who has taken their lump sum but not annuitised can still access greater pensions flexibility next year.

However, annuity providers remain concerned about those who have used the open market option to buy an annuity but have now changed their mind in light of the radical changes announced by Chancellor George Osborne last week.

MGM Advantage pensions techincal director Andrew Tully says some insurers are not allowing the funds to be repaid, affecting up to half of all those who planned to annuitise before the Budget but are now trying to cancel.

He says: “We have extended the cancellation periods and we have a whole bunch of people where we want to return the funds to the ceding provider but they will not take it.

“It means the customer is stuck because they are not in a scheme with us and the existing scheme won’t take them back. After today’s news, we could wait until next April but it is not really sitting in a pension scheme because it is not invested, although legally it is.”

In the Budget last week, the Chancellor said over-55s could take their entire pension pots in cash from next April.

Today, further interim measures are being introduced including reducing the flexible drawdown minimum income requirement from £20,000 to £12,000 and increasing the maximum income a person in income drawdown can take from 120 per cent of GAD to 150 per cent.

Around 200,000 savers who wanted to take their lump sum before November were unsure about whether they would need to buy an annuity or enter drawdown.

Some providers have extended their annuity cancellation periods to give customers more time to change their purchase decision.

The Association of British Insurers hit out at the “wholly unacceptable cliff edge” from HMRC rules that prevented providers returning tax-free lump sums to people who have recently decided to buy an annuity. Now they can delay annuitisation.

The Treasury says it is willing to work with the industry to resolve other interim issues arising from extended cancellation periods.

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Comments

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

  1. Am I the only one starting to get the impression that the proposals last week might not have been fully thought though as we’d hoped, or assumed?

    PS ‘Hardworking people ‘ and ‘hard-earned savings’ – the constant repetition of these expressions has rendered them meaningless.

  2. Has retirement dulled my senses or has the government just given me a 6.25% investment return? I can invest £3600 in a PPP/SIPP. Assume investment return just covers the charges so when I decide to take my fund £3600, as cash I get £900 tax free and £2160 after 20% tax a total of £3060. Deduct my net outlay of £2880 giving a 6.25% return of £180. I’m off to my local IFA – what do you mean your fee is £500!

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