Pensions  

Lib Dems join calls for pension cooling-off period

Lib Dems join calls for pension cooling-off period

The Lib Dems have joined calls for the government to introduce a cooling-off period for people taking a lump sum from their pension pot without financial advice.

Stephen Lloyd, the Liberal Democrat Work and Pensions spokesman, called for the move amid concerns people may not understand their tax liability when making withdrawals.

Under the current rules, any withdrawal over the 25 per cent minimum is taxed at the emergency tax rate, which can leave pensioners paying more tax than anticipated.

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Mr Lloyd said he had written to Esther McVey, the Secretary of State for Work and Pensions, urging the government to take action.

He said: "The pensions freedoms have enabled many people across the country to better plan for their retirement, but the legislation was always intended to be a work in progress, the cold calling ban and this cooling off period are the next logical steps."

Mr Lloyd said some retirees may not be fully aware of their tax liability before making their decision and the introduction of a cooling off period would address that.

In July, FTAdviser reported that national advice firm LEBC had renewed calls for a 30-day cooling offer period and a change to the current pension freedom rules. The government’s Office for Tax Simplification has also previously made similar calls.

Alistair Cunningham, financial planning director at Wingate Financial Planning, endorsed the move, saying a cooling off period was sensible, but he added this should be expanded to pension transfers as well as withdrawals.

He said: "Where you make a decision to transfer into the new scheme, you have a right to cancel the new scheme, but it doesn’t mean you have the right of entry back into the old scheme.

"A broad cooling off period, for people to think about what they are doing, would be a good idea, obviously allowing for market fluctuations, etc."