Flexible fines

SallyG

http://www.moneymarketing.co.uk/opinion/editors-view/mm-leader-pension-freedoms-arent-so-free/2015713.article

"It has now emerged that providers will have to give members a statement when they access their pensions flexibly in order to trigger a reduction in the annual allowance.

They in turn will have to pass this information on to all their other providers and schemes. Failure to do so within a 31-day time limit will see members hit with escalating fines the longer the non-compliance goes on, potentially running into thousands of pounds.

Savers will need to be told that it is their responsibility to pass information on to all their providers and that if they do not comply they will face punitive fines."

Linton

I agree there seems to a real risk of expensive complexity with the new system. I am currently setting up flexible drawdown with my SIPP; its turning out to be a bit of a pain. What will happen when large numbers of people start flexibly drawing down from multiple pensions?

It seems to me that for most people most of the complexity is unnecessary as it appears to be associated with Lifetime Allowances and non-standard pension arrangements.

jamesd

Someone is going to have to tell the other providers. the alternative would seem to be every provider getting a file from HMRC and checking against that whenever more money is paid in. More systems and work for providers compared to the members who can already be told what they need to do and can do it.

At least, the members can do it if they know about all of their pensions. Many won't, hence the pension tracing service.

Linton

It may well not be a simple matter of passing information on. To get authorisation for my drawdown I have had to get one of my other pension providers to provide the required information in a formal letter causing extra hassle and delay. My word wasnt good enough.

The central HMRC file approach could surely be automated and would be more efficient than everything being arranged on an ad hoc basis. Wont HMRC have to collect peoples pension details anyway in order to police the system?

Retyre

I wonder if a lot of people will end up consolidating (and whether charges for such will start to creep in......)

zagfles

Why do other providers need to be told? It the individual's responsibility to be aware of the annual allowance and pay any tax due, so why do providers need to know?

If I have a cash ISA I don't need to tell the provider I also have a S&S ISA, I just need to make sure I keep within the overall limit. Why is it any different with pensions?

jamesd

ISAs have systems in place that have providers providing details to HMRC each year that will catch anyone breaking the rules. There is limited time to get the pension changes in place so it makes some sense to use consumer tells rules initially and do something else later.

zagfles

jamesd wrote: »

ISAs have systems in place that have providers providing details to HMRC each year that will catch anyone breaking the rules. There is limited time to get the pension changes in place so it makes some sense to use consumer tells rules initially and do something else later.

So what system is in place to stop people exceeding the £40k allowance? Why does it become a problem when there's a £10k allowance?

Thrugelmir

Retyre wrote: »

I wonder if a lot of people will end up consolidating (and whether charges for such will start to creep in......)

No one thought the plans through properly. Commercially it will be unviable for many providers. So may not be the revolution that was expected. More of a damp squib.

Your_Hero

zagfles wrote: »

Why do other providers need to be told? It the individual's responsibility to be aware of the annual allowance and pay any tax due, so why do providers need to know?

If I have a cash ISA I don't need to tell the provider I also have a S&S ISA, I just need to make sure I keep within the overall limit. Why is it any different with pensions?

Because tax-relief on pensions can be abused to a far greater extent than tax-free interest/gains on ISAs.

I'm not fully supportive of it, but there's little alternative, in the short term at least, to ensure people stick to the rules. We still see people breaking ISA limits - such a simple product and yet people fail to understand/abide by the rules. No chance for the average person to understand pensions and annual allowances.

jamesd

zagfles wrote: »

So what system is in place to stop people exceeding the £40k allowance? Why does it become a problem when there's a £10k allowance?

All providers already know that there is a 40k allowance and know that they could need to ask about carrying forward of allowance from past years or report exceeding that if it is exceeded. I don't know how this case is handled at present for the 40k limit. I also don't know how it is handled for those in the current flexible drawdown system with a zero allowance - who tells the pension providers?