HMRC has told pension providers what they have to do in instances where clients have decided to cancel their annuity contract in the wake of the Budget overhaul of pensions.
Guidance issued by the tax office states under what circumstances people can take advantage of pension flexibility without having to wait for changes to the Finance Bill and how providers should process the business.
If the provider has paid a tax-free lump sum to an individual and arranged for an annuity contract and the funds are then returned because the individual has paid back their lump sum and cancelled the contract, the original benefit crystallisation events are also to be treated as cancelled.
If the lump sum is not returned but there is no related annuity or drawdown then the lump sum paid is to be treated as the ‘permitted maximum’ and HMRC confirmed the lump sum will not be treated as an unauthorised payment.
This will apply whether the individual wants to take advantage of the flexibility allowed from 27 March 2014, or the proposed further flexibility from April 2015.
HM Revenue & Customs has also revealed who can do what they want with their pension pot now rather than wait until the Finance Act 2014 confirms they do not have to purchase an annuity.
If you have given instructions to receive your benefits but your pension scheme has not paid your tax-free lump sum or set up your annuity then HMRC confirmed you do not have to wait for the proposals for greater pensions flexibility announced in the Budget to be turned into legislation.
You can also take a lump sum now if your pension scheme has paid you your tax-free lump sum, and bought your annuity but you cancelled the annuity contract within the cooling-off period and entered into drawdown with your pension scheme.
