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Savers ignorant of pension stipulation

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4th Aug 2015
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Pension savers taking advantage of government freedoms are seemingly unaware of a technicality that could land them with a penalty of £300 from HMRC.

HMRC’s rules say savers who have dipped into their retirement savings since April’s reforms could be landed with a fine if they are still paying into another pension, and neglect to inform that company.

The Revenue stipulates that individuals have 91 days to notify their providers after taking money from other pots, with fines of up to £300 — plus subsequent daily fines of £60 — if they don’t.

Speaking to the Financial Times, Rod McKie, head of retirement propositions at Zurich, said the pension provider was concerned that less than 30 of their customers have informed the insurance giant about accessing their other pension pots.

“With reports of tens of thousands of withdrawals industry-wide, we would expect this figure to be much higher, unless individuals are leaving their response to the deadline,” McKie told the FT.

Figures released by the Association of British Insurers would seem to reinforce McKie’s concerns. The ABI has said more than a quarter of a million payments totalling £1.8bn have been made to customers from pension pots in April and May alone.

HMRC has stated that it’s up to pension providers to alert customers as to their obligations within a month of their initial withdrawal. McKie parried this, saying that letters simply weren’t resonating with customers.

What can be done to alert pension savers to their legal obligations? 

Replies (15)

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the sea otter
By memyself-eye
04th Aug 2015 14:46

can you show me

where the link is to this legislation?

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Replying to Paul Crowley:
Francois
By Francois Badenhorst
04th Aug 2015 15:39

Hi there

First, your username is great. Also, apologies for not linking to the legislation. Oversight on my part, so cheers for completing my job for me! 

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the sea otter
By memyself-eye
04th Aug 2015 15:09

I found it

PTM 133810 recycling of pension commencement lump sums.

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Head of woman
By Rebecca Cave
04th Aug 2015 15:36

Guidance in HMRC Pension schemes manual

Para PTM166400 of hte Pensions Schemes manual tells the pension scheme member he must inform all other pension schemes of which he is a member that he has flexibly accessed his pension from another scheme. See Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567 reg 14ZB.

The penalties for failing for comply with this information requirement  are imposed under TMA 1970 s 98 as explained in para PTM160800.

 

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Replying to Ashley1212:
Francois
By Francois Badenhorst
04th Aug 2015 15:40

There we go!

taxwriter wrote:

Para PTM166400 of hte Pensions Schemes manual tells the pension scheme member he must inform all other pension schemes of which he is a member that he has flexibly accessed his pension from another scheme. See Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567 reg 14ZB.

The penalties for failing for comply with this information requirement  are imposed under TMA 1970 s 98 as explained in para PTM160800.

 

Cheers, Rebecca!

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the sea otter
By memyself-eye
04th Aug 2015 19:40

so...

If I 'flexibly access (cash in) a pension from one provider, do I have to notify every other provider to whom I am paying contributions?

Does this only apply if I 'top up' my contribution to that provider.

Does it apply if that 'top up' is within the sums allowed under the legislation (£7.5k etc) ?

No wonder (most of) my wealth resides on the stock market!

 

 

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avatar
By DMBAcc
05th Aug 2015 12:25

Logic?

please could someone provide the logic behind this requirment?

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By lynamn
05th Aug 2015 12:49

Logic?

£300 per offence, perhaps.

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By Kate Upcraft
05th Aug 2015 13:15

it's all about the MPAA
It's an offence because once you flexibly access cash from your DC pension you are subject to the reduced Money Puchase Annual Allowance (MPAA) of £10k versus the normal annual allowance for pension tax relief of £40k. HMRC will get to know anyway potentially as from April of this year all pension payrolls when they process a flexi access or UPFL are asked to submit a marker on the FPS that accompanies the payment which is called 'flexibly accessing pension rights'. From April 2016 this marker is mandatory and we've been told that there will be even more detailed RTI reporting of withdrawn sums but the software developers have very little detail at present which is a worry as software needs signing off by December.

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the sea otter
By memyself-eye
05th Aug 2015 13:55

So, if I cash in

A small DC pension of £6k - which I did in June - and then top up my other DC pension by £1K which I also did soon after - and that £1k added to my regular contributions into the second pension are less than £10k pa - which they are - am I committing an offence by not notifying the second pension provider, even though I had sufficient other funds to top up that pension prior to flexibly accessing the first?

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By Kate Upcraft
05th Aug 2015 15:24

MPAA

The MPAA doesn't apply to small pot commutations: see https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

hope this helps

Kate

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the sea otter
By memyself-eye
05th Aug 2015 15:46

It does

Thanks.

Now I can retire to my tropical island...yeah right.

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By Henry Tapper
06th Aug 2015 09:58

Complexity

As someone with over 30 years in pensions, I struggle to keep up with pension taxation, I can only worry for ordinary people struggling with the MPAA reporting.

Thanks to those on this thread to bringing me up to speed. As Kate says, it should be possible to solve some of this with RTI but I fear the onus will remain on the individual as it is to aggregate for the annual allowance and lifetime allowance. 

There are two things coming that may make things better (in the long term).

Firstly there is the Green Paper on pensions taxation which could bring changes to the tax system as early as next spring.

Secondly there is a gathering realisation that the rules around drawdown are so complicated that it is an accident waiting to happen (on a national scale). 

Expect to see a lot of talk (and some action) over months to come - around tax and simplification - ultimately I suspect we'll see smarter and simpler products for those with limited advisory budgets and less financial awareness of the pension taxation system!

 

 

 

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avatar
By DMBAcc
06th Aug 2015 13:03

Thank you...

.... for the replies and other postings

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By tonycourt
07th Aug 2015 22:21

Clarification

Does anyone know if the legislation Rebecca helpfully chased down has been updated to cover flexi-access rather than flexible access? Flexible access ceased to exist on 6 April 2015 and all such plans were converted to flexi-access.

From what I could tell the legislation referred to above specifically refers to flexible access. As not all flexi-access is on all fours with flexible access the motives behind the requirement to notify will not necessarily therefore be the same. Certainly the MPAA cannot be a common factor given that it was only effective from 6 April 2015, i.e. a long time after the legislation rflexible access was created.

It may be that there is a recent SI widening the scope of the earlier one so as to cover flexi-access. Or it may be that HMRC has simply assumed that it extends to flexi-access. If the latter  then might it be that penalties don't apply for failing to notify? (Well, at least until the legislation is updated)

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