PensionsApr 17 2014

FCA issues post-Budget pension guidance

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The regulator released a 10-page document, Pension Reforms: Guidance for Firms in the Interim Period, giving more detailed instructions for providers and intermediaries who deal with consumers at retirement.

The paper has clarified that advisers may wish to “proactively contact” customers who applied for an annuity or income drawdown just before the Budget and remind them of their “right” to change their mind.

The instructions are extended to annuity providers that were quick to extend cancellation periods for annuity purchases until 17 April.

The guidance follows provisional efforts by providers to contact customers and give them more time to consider the changes, which give consumers free rein to draw down as much of their pension pot as they like at their marginal tax rate.

The FCA stated that providers should get in touch with customers who have recently applied for an annuity with a fund of £30,000 or less.

However, providers were given leeway in a number of areas and told, for instance, that they may wish to target only “relevant” customers of changes to trivial commutation.

For those customers who have already received retirement literature, advisers have been told to consider the implications of the changes and provide “clear information”.

Huw Evans, deputy director-general at the Association of British Insurers, said: “We regret it has taken three weeks since the Budget for this clarification to be forthcoming. This has been three weeks of limbo for all those seeking to take crucial decisions.”

Adviser view

David Trenner, technical director of Glasgow-based Intelligent Pensions, said: “There is some confusion over what the document means by a guaranteed annuity rate. Is the FCA saying that firms may want to tell customers about the benefits of GAR in relation to a recently obtained annuity rate or is this in relation to the traditional definition of GARs on policies?”

HM Revenue & Customs guidance on pension changes

Individuals can already take advantage of the new flexibility without waiting for April 2015 if:

- they have given instructions to receive their benefits but their pension scheme has not paid their tax-free lump sum or set up their annuity

- the pension scheme has paid out the tax-free lump sum and the individual has bought the annuity but cancelled the annuity contract within the cooling-off period and entered into drawdown with the pension scheme

- their pension scheme has paid the tax-free lump sum and the annuity contract is set up but their total pension rights (in all pension schemes including those in payment and any tax-free lump sums) are £30,000 or less and they meet all the requirements to immediately take the annuity as a taxed lump sum