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Topics: HMRC| Income Drawdown| GAD| Pension
HMRC has backtracked on rules that could have left some investors trapped in poor personal pensions, in response to pressure from pension providers.
The draft of the Finance Bill published on 31 March said all savers switching pension funds to new providers after 6 April would become subject to new, stricter withdrawal limits when later going into capped drawdown.
This would mean any transfer of uncrystalised benefits into a scheme in which chrystalised benefits were held would trigger the application of the new rules.
Under the new rules, the maximum capped withdrawal from pensions is 100% of the GAD rate, rather than 120%, whilst the old five year longevity reviews have been replaced with triennial or yearly assessments.
Pension providers had warned investors may feel compelled to stay in poorly performing plans rather than move fund and face the stricter drawdown limits.
However, HMRC has now changed its rules so investors switching providers will not be assessed under the new regime if they are transferring uncrystalised benefits or those that have been not converted into income.
Instead, investors transferring uncrystalised benefits will not come under the new regime until their current assessment period ends, which could be as late as 2015.
Gareth James, technical marketing manager at AJ Bell, said he and other members of the Association of Member-Directed Pension Schemes have received confirmation of the change from HMRC's policy team.
"It is very positive HMRC has clarified the position, and this is a sensible outcome for clients, advisers and providers," James said.
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What on earth are they talking about?
Uncrystallised funds by defintion are not crystallised and hence NOT in USP/drawdown!
Posted by: Phil Castle
HMRC U turn
Have I missed something - I could understand if this applied to crystalised - please explain
Posted by: webbie
d/d "u-turn" by HMRC
Nothing new ---just the obvious mistake in your article! God save the IFA from what we're surrounded by!
Posted by: michaelbates
eh!
Clear as mud this article....have a compliance chappie/ess check your mail first!
Posted by: Fraser Brydon
More clarity needed please
More clarity is required here; are you trying to say that someone who transfers a pension fund, in which there is a mixture of crystallised and uncrystallised funds (i.e. someone in partial drawdown) will retain the current reference period where they engage in additional fund designation post-transfer?
Posted by: JJT
Clarification
Hello, Apologies for the mistake in this article. It has been corrected. The issue was that the original HMRC position was the post 6 April transfer of uncrystallised benefits from one pension provider to another meant when the client then went into drawdown it brought the review to 100% GAD maximum forward by 4 years. The updated position means that it doesn’t bring that review forward. That was what was meant in the original article - sorry for the confusion. Thanks RD
Posted by: Rachel Dalton
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The issue was, for an arrangement that holds drawdown funds with a reference period that began before 6/4/11, what kind of transfers would trigger a new reference period (and hence new basis amount and drop to 100% maximum) from the end of the current drawdown year. The original HMRC position was that all transfers in or out of the arrangement would trigger this, so if the arrangement allows for both uncrystallised and crystallised funds then even a transfer of uncrystallised funds (in or out) would trigger it. The revised HMRC position is that only a transfer of the relevant drawdown funds will trigger this. No "rules" have changed. All that has happened is that HMRC, in prompt response to concerns raised by the industry, has taken a more pragmatic line about the meaning of the new (draft) legislation. This is welcome. HTH, as they say.
Posted by: Nick White
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Typing errors...
Surely this should read crystallised benefits and not uncrystallised? If a memeber has uncrystallised benefits then these are not under the old rules as such.
Posted by: You must be joking