Where am I? 
Home Pensions - Retail Annuities
Topics: Fees| RDR| Annuities| HMRC| Tom McPhail
Industry figures have raised concerns over Her Majesty’s Revenue and Customs’ (HMRC's) stance on adviser charging on annuity business.
Problems with how advisers will collect their fee from an annuity transaction after the retail distribution review (RDR) have appeared because of the tax treatment of pensions.
The difference of opinion has sparked a round of representations from IFAs and providers to HMRC, Tom McPhail, head of pensions research at Hargreaves Lansdown, said.
The difficulty arises when a client wishes to buy an annuity from a different provider to the one they initially saved with.
Advisers have assumed that, when a client selects adviser charging to pay for their annuity transaction, the current pension provider would release the client's tax-free pension commencement lump sum (PCLS), before transferring the remaining pot to the annuity provider.
At this stage, it had been expected that the annuity provider would pay the adviser's fee to the IFA before investing the rest into the client's annuity.
However, HMRC has highlighted problems with this model.
The Revenue believes the adviser's charge should be taken proportionally from the client's entire pension pot, McPhail said.
In this case, a proportion of the adviser's charge would have to be taken from the PCLS, paid out by the first provider, and the rest of the charge from the balance, paid out by the second provider, causing a series of complications, McPhail said.
"The first provider probably would not want to cooperate because they do not have the systems to extract part of the adviser's charge from the PCLS," said McPhail.
"The first provider would also be unlikely to want to bear the cost of a transaction they are not handling; in this case, the purchase of an annuity with another provider."
McPhail added that if HMRC will not revise its position, it may lead to advisers telling clients to buy their annuities via execution-only services as paying an adviser charge in this way would be too complex and expensive.
| Share | |
| Comment | HMRC clashes with industry over annuity adviser charging |
More annuities news
Email alerts
Recommended reading
Categories
Topics
Comments
HMRC
HMRC are just being silly - it is already perfectly possible to split transfers and have different fees on each different component. Indeed this is nothing to do with HMRC - your client takes his tax free lump sum from provider A transfers to provider B (with or without a fee) buys annuity none of this is reportable to HMRC
Posted by: Ian Smith
Unsustainable
It amazes me that some IFAs actually think that fee charging for annuities is a sustainable business model. Finding fee charging IFAs, not long after the abolition of commission, will be like looking for gnatshit in pepper...
Posted by: Ken Durkin
Take fee from PCLS
Is it not easier to invoice the client and they then write a cheque from the PCLS to cover the fee?
Posted by: Simon
customer benefits
The whole point of RDR was to make things easier, more transparent, more customer/client friendly, this is yet another example of flawed thinking and planning. The client/customer will derive no benefit from this action at all. It has no impact on the HMRC as it is a no change from the current position. HMRC are repeatedly saying that they are not changing anything and here is an example where the is fundamental change with 9 months to go.
Posted by: Robin Seymour
Horrible
I'll admit I must have misread the HMRC guidance. I though that the charge was being considered as a pension admin charge and as such considered as reducing the pension pot. This would mean the maximum tax free cash (pcls) was reduced but the charge was actually PAID by the annuity provider. Doing it this way has LESS impact on the TFC than asking your client to pay it completely out of their tax free cash. This article seems to imply that both the pension provider and the annuity provider pay a piece. How on earth will that work, back to the days of slow annuity transfers?
Posted by: Tracy
Eh?
Ken Durkin, why don't you think customers will want to pay for annuity advice or is it just that you don't think there will be any IFAs left after RDR (there certainly will be a lot fewer)? In my, admittedly limited, experience annuities are one area the public already recognise they need independent advice and are more than happy to pay for it. Perhaps you could give us the benefit of your experience by expanding your comment a bit. Incidentally I agree with the tone of most of the other bloggers that the HMR&C seems to be being deliberately obtuse.
Posted by: Michael Both
DAFT HMRC!
Another example of daftness that kills the economy. What the heck is their justification for doing this? Why not leave the choice to the customers, take it from the TFC, the crystalized pot or if possible both. Should be no reason why any one of them is not possible. At best there could be some minor technicalities or paranoid distrust of advisers.
Posted by: Tom
Maining of "unsustainable"
Unsustainable business model doesn't mean customers won't pay for annuity advice. With regard to annuities, what it means is that the amount customers are willing to pay for advice gradually decreases through competition until advice is offered completely free of charge - in the hope that there will be other business on the back of it. Once IFAs are no longer paid by providers for marketing provders' products IFAs will disappear. The RDR model is flawed because it assumes product marketing is free...
Posted by: Ken Durkin
U Turn
This is now a non conversation - HMRC are making a u turn on this, or so it seems now!
Posted by: Tracy
What a lot of hot air !!
To clarify this - HMRC have realisted that by forcing advisers to take a fee from TFC as well as pension pot, more is then left for the annuity which is then taxable - i.e.more tax on the pension payments for them..so hence the interest. All that will happen is that full fund transfers will have to be done rather than net of TFC OMOs - simples !!
Posted by: DennisB
Bureaucratic Chaos
Absolute and practical real world proof of Austian economists assertion that bureaucrats always create chaos in the spontaneous order of the free market. The RDR is going to end in tears.
Posted by: Steven Farrall
Dismay
My understanding and that of several providers I spoke to previously understood that annuities as non investment contracts were not subject to commission ban and that commission was to continue to be paid as at present For such fundamental misunderstandings it does add to the reasons why RDR should be postponed at least, scrapped at best
Posted by: Confused of Hampshire
Related articles
Most Read
Audio / Visual
With the industry's biggest fund managers, IFAonline welcomes you to the media centre.
This year we have 14 awards designed to mark out the very best products in a highly competitive and innovative market. This includes three new awards for 2011 to reflect the developments in this rapidly growing market: Best Dual/Multi-Index Product, Best Structured (Oeic) Fund and Best Structured Product Provider.
Events
Poll
|
|
Job search
Ifaonlinejobs will open the right investment career path for you. Search hundreds of vacancies on www.ifaonlinejobs.co.uk now
In Focus
In the case of those people approaching retirement or those who have recently retired, the...
Viewpoints
Growth of the annuity market - Over the next five years, the ‘at retirement market' is predicted...
sponsored by
HMRC
This is exactly one of the reasons RDR should be deferred for a further period.We are only 9 months away and all the implications and consequences have not been assessed. RDR should not be implemented untill all the consequences have been looked at. All the FSA have been interested in is qualifications and not the total ramifications of RDR. Its time the Government got a grip on things and realise that RDR is going to cause more problems for general public than its going to solve. I am not talking about those with plenty of dosh, but those that have not and need advice and help.
Posted by: terry