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HMRC rules branded barrier to legacy product bulk transfers

HMRC rules branded barrier to legacy product bulk transfers

A rule governed by HM Revenue and Customs is preventing providers from easily transferring clients out of old-style, potentially more expensive, legacy products, according to Aegon.

The rule demands providers collect their clients’ signatures for claiming pension tax relief every time they transfer a pension out of a scheme, even if it’s done internally by the provider.

Regulatory strategy director at Aegon, Steven Cameron, said the provider was interested in transferring their clients out of legacy products and onto their platform whenever it was in their best interests.

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But the rule is preventing the provider from initiating the transfers for people who make regular contributions into their pensions because it means they could be missing out on pensions tax relief.

Chasing signatures was a problem that significantly delayed the transfer process, meaning some clients were not getting the value for money they could be, he said.

Mr Cameron said: “If clients change from one pension scheme to another they need to sign an agreement to receive pension tax relief.

“This stops us from automatically moving people as it’s difficult to get people to sign.

“We’ve been trying to get HMRC to change processes but they can’t.

“It’s a shame as it would be in the vast majority of people’s interests [to transfer to a platform].”

The Financial Conduct Authority (FCA) has been vocal about the need to provide clients with value for money.

In April it said it was in the “early stage” of assessing value for money in the advice market.

In May 2016 it announced that, from March 2017, exit charges from old style contracts would be capped at 1 per cent of the member’s pension pot.

Mr Cameron said platforms are generally able to offer clients more services, wider fund choice, more transparency as well as better access to pension freedoms than some legacy products.

“Older pension products are not designed for pension freedoms whereas platforms are up and running for them,” he said.

He also said the FCA should be looking for value for money in the wider pensions market, comparing platforms with older pension products not just with other platforms.

The regulator is currently probing the platforms market on whether there is enough competitive pressure to incentivise operators to put pressure on asset management fees.

But Mr Cameron said: “We think the value offered on platforms is better than what historically has been offered by life companies.

“The FCA needs to look at value for money not within platforms but compared to what people are invested in outside of it.”

An HMRC spokesperson said: “Where a pension scheme operates relief at source (RAS), the member must declare they are a basic rate taxpayer in order for the scheme administrator to claim tax relief on the member’s contributions to the scheme. Without the declaration the scheme administrator is unable to claim the tax relief from HMRC.”