ABI resolves adviser charging dispute with HMRC

The Association of British Insurers (ABI) has successfully resolved a conflict with Her Majesty’s Revenue and Customs (HMRC) over the rules around adviser charging on annuity business.

Earlier today it emerged HMRC had received representations from the pensions industry over its stance on adviser charging.

HMRC issued guidance in January which said advisers whose clients buy open market option (OMO) annuities must take their charge from two different sources.

The original guidance said adviser charges must be drawn partly from the pension commencement lump sum (PCLS), when released by the incumbent provider, and partly from the remaining pot when annuitized by the new provider.

However, the ABI confirmed in a letter to its members today that it has negotiated with HMRC to have this policy changed.

"After further discussions which highlighted the potential adverse consequences of the guidance to the consumer, HMRC has confirmed it will review the guidance in light of this and expects to update any changes in the next online release," the ABI said.

Under the new HMRC guidance, advisers will be allowed to take their fee from the pot that remains after the PCLS has been paid, avoiding the complexity of being paid by two providers.

The ABI said the previous guidance would have deterred consumers from taking financial advice on their annuity purchase.

"While adviser charging in relation to pension advice had been deemed as an authorised scheme charge, the rules were less clear when it came to annuity purchase," the association said in a statement.

"ABI has been working closely with HMRC to ensure the payment of the advice charge will be considered as an authorised scheme charge and further work was carried out last year to ensure this would also be the case for advice on annuity purchases.

"Whilst we were pleased to see that this agreement was reflected in the published guidance, we had serious concerns regarding the accompanying statement that a deduction of an authorised payment at the point of annuity purchase has a bearing on the maximum amount of the PCLS available.

"This position appeared to contradict our understanding of the discussions with HMRC last year.

"The guidance stood to act as a deterrent for providers to facilitate adviser charging and as a consequence for consumers to take advice and thus exercise the OMO.

"This is because advice would have been tax disadvantaged relative to the current arrangements, and consumers would see that they receive a reduced lump-sum as a result of taking advice."