Pension savers given longer to notify providers about flexible withdrawals

Out-Law News | 25 Nov 2014 | 3:06 pm | 1 min. read

Pension savers that take advantage of new freedoms to access their money would have 13 weeks to tell pension providers that they are exercising their new flexible access to pension rights, under new plans outlined by the UK chancellor.

In proposed amendments to the Taxation of Pensions Bill, which is currently passing through parliament, George Osborne outlined his intention to extend the timeframe savers would have to tell pension providers about their flexible pension access from 31 days, as was originally proposed, to 91 days.

Osborne's plans also mean that the obligation to inform pension providers about that access would only apply in cases where the savers are active members of the pension scheme or will be contributing to them in future.

Once approved, the new Taxation of Pensions Bill would allow those aged 55 or over access to their defined contribution (DC) pension savings in whatever form that they wish without necessarily having to purchase an annuity, subject to their marginal rate of income tax.

Under current rules, most DC savers are effectively forced to buy an annuity on retirement to avoid tax penalties. From April 2015, members of DC schemes aged 55 or over will be able to cash in their pension savings subject only to tax at their marginal rate.

The Bill sets out a range of reporting requirements which would require pension providers to tell savers of the date that they exercise their new pension access freedoms and of the fact that tax charges will apply to pension drawdowns on amounts accessed in excess of the £10,000 annual tax allowance.

Under the original wording of the Taxation of Pensions Bill, pension savers would have been required to pass on the information they received from the pension provider they were accessing funds from to all other administrators of pension schemes they were a member of within 31 days.

Osborne's amendments seek to narrow those reporting requirements and extend the timeframe for notification.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, welcomed the amendments that have been tabled: "It wasn’t clear why the original legislation required individuals to inform all of their pension schemes, even those they didn’t intend to make further contributions to, about flexibly accessing their pension rights."

"The aim of the legislation is to ensure HMRC finds out if members exceed the £10,000 money purchase annual allowance, which is triggered by flexi-access. However, that allowance only applies if excessive contributions are paid to a DC scheme going forwards. Savings that have already built up don’t count. The additional time for reporting is also welcome. If members are expected to report on anything, it is sensible that they are given plenty of time to do so. Not all members affected will be savvy about the tax requirements," Tyler said.