Good news on tax for savers reversing annuity decisions

Published:  10 Apr at 6 PM
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Following the shake-up of pensions announced in the UK’s 2014 budget speech, many thousands of savers who changed their minds about annuitising as a result have voiced their concerns about tax penalties.

The good news that a number of product providers have extended their cooling- off periods, giving savers time to get professional advice, has now been followed by the even better news that Her Majesty’s Revenue and Customs will not demand tax penalties from those who have reversed thier decisions.The radical budget changes, due from next April, will allow all pension pots to be taken entirely in cash.

Meanwhile, insurers have stated their concerns over HMRC rules which disallow returning tax-free lump sums into savers’ pensions without attracting charges for unauthorised payments. HMRC’s recently announced guidance notes on this issue seem to have calmed insurers’ fears and are working in favour of savers.

The government-extended time frame, under which savers can now take 18 months to decide on a retirement option after drawing down a tax-free lump sum, is a boon to expat savers unable to easily access reliable advice in their host countries. Current rules set the time frame to just six months, after which any lump sum withdrawal is taxed at a hefty 55 per cent.

According to the Treasury’s exchequer secretary, David Gauke, the change is the most fundamental departure from previous rules in almost 100 years. He adds that almost half a million savers will finally be allowed flexibility in managing their retirement nest eggs.

Guake approves the extended time scale for the decision-making period, saying that savers will now be able to consider fully any advice given on the best moves, as well as taking advantage of the new flexibilities. The Association of British Insurers is happy about the developments, although it regrets that clarification on important issues was only provided by HMRC some three weeks after the budget speech.
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