The Association of British Insurers has slammed HM Revenue & Customs for still not clarifying the tax rules around those who have taken a tax-free lump sum from their pension but have no longer decided to annuitise following the changes announced in the Budget.
Last week, chancellor George Osborne announced “no one will have to buy an annuity” as he made radical changes to the pension market, including allowing those aged 55 to withdraw all their pension at once.
Since then, a number of providers have extended their ‘cooling’ off period to allow customers to talk through the changes with their adviser, however the ABI questioned what HMRC has been doing.
Huw Evans, director of policy at the ABI, said: “Pension and annuity providers were given no advance warning ahead of the Budget changes that came into effect within a 10-day period and have been working round the clock since to help customers understand their choices.
“The government’s announcement introduced a cliff-edge for customers and it is wholly unacceptable that a week after the Budget HMRC has still not clarified the rules around whether tax free lump sums can be reversed for those customers who have just annuitised and wish to change their mind.
“The current HMRC rules state that this is an irreversible benefit – yet providers, customers and financial advisers need clarity urgently if they are to navigate the current situation.
“Insurers remain committed to working with each other closely to help customers who wish to exercise their ‘cooling off’ rights but needs the government to do its part to recognise the urgency of clarifying the post-Budget situation it has created.”
A Treasury spokesperson told FTAdviser: “The government will work with industry over the next few weeks to ensure that people who have taken a tax-free lump sum, but not purchased an annuity or entered drawdown yet, are able to take advantage of increased flexibility and will not have to pay tax on their tax free lump sum”.
Last week, FTAdviser revealed Friends Life, Prudential and Royal London have frozen current annuity applications while they contact clients to make them fully aware of the choices now available to them.
Aegon UK, Legal & General and Standard Life confirmed they were pushing ahead with confirmed business.
Scottish Widows and Partnership also outlined “cooling off” periods.