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Pension Wise leaving savers open to big tax bills

Former pensions minister Ros Altmann says guidance service alone not enough for savers to understand tax impact of withdrawals.

Pension Wise leaving savers open to big tax bills

Former pensions minister Ros Altmann has said the government’s Pension Wise service does not provide enough support for people to understand how to avoid getting hit with big pension tax bills.

Altmann told the Financial Times the Pension Wise service alone does not provide enough information to consumers about the recent changes to pensions.

‘Just using the Pension Wise website is not sufficient for most people to deal with the changes and complexities of pensions,’ Altmann told the paper.

‘There is a real concern that people, when withdrawing money from their pensions, could inadvertently land themselves with a big tax bill when making further pension contributions.’

Pension Wise is the government’s guidance service for pensions, which is soon to be merged with other guidance bodies to create one new service.

Scant detail

One of the most recent pensions policy changes is the money purchase annual allowance (MPAA) cut.

The MPAA restricts the amount of money people can put back into a defined contribution (DC) pension once they have started taking benefits from their savings under pension freedoms.

Announced in last year’s Autumn Statement, the chancellor Philip Hammond said he was going to cut the MPAA from £10,000 to £4,000, with the change coming into effect in April. However the legislation for the change has not been pushed through parliament yet, meaning it is still unclear how much savers can put in.

The Financial Times report found that there was only a single paragraph on the Pension Wise website about the MPAA cut under the 'Get an adjustable income' section which says: ‘You may be able to keep paying in after you take money out but you could pay tax on contributions over £4,000 a year (known as the ‘money purchase allowance’).’

Malcolm McLean, a senior consultant at Barnett Waddingham, said this information from Pension Wise was not enough for consumers.

‘It is absolutely necessary for the Pension Wise website to highlight the MPAA and what it means for pension savers more prominently on its website. As it stands it is difficult to find and can easily be missed,’ he told the paper.

McLean added the 'vast majority' of most people would not know what the MPAA was.

A Department for Work and Pensions (DWP) spokesperson told the Financial Times: ‘The implications of the money purchase annual allowance are made clear on the Pension Wise website and we encourage people to book a free face-to-face or telephone appointment where they will receive information about how and when these tax rules apply.’

12 comments so far. Why not have your say?


Jul 26, 2017 at 14:26

There comes a point when you have to say that people should take professional advice. Most people start making pension contributions, and start drawing their pensions, only a few times in their lives. Perhaps only once. One can't expect them to be experts on access restrictions, tax relief on money paid in and on money taken out.

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Jul 26, 2017 at 14:46

The problem is getting the balance right between nanny stateism and devil take the hindmost. Maybe you should have to pass a "pension test" before being allowed to start drawing a pension without having first taken professional advice.

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Law Man

Jul 26, 2017 at 17:24

There are two risks:

(1) that the investor withdraws a large sum in one year, such that part is over the Higher Rate income tax threshold;

(2) that the investor withdraws income (not 25% TFLS) and in consequence is restricted on further contributions to £4,000 p.a.

Could this not be covered by requiring the fund manager to respond to a request for draw down by issuing a quotation showing:

(I) the tax to be deducted - if the investor's personal tax rate is unknown show two or three assumptions;

(Ii) a statement that in future you are restricted to £4,000 p.a. further contributions.

If the investor chooses to proceed he or she can not complain.

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Anonymous 1 needed this 'off the record'

Jul 26, 2017 at 17:48

Being forced into the arms of an IFA is not the way forward. I've spoken to a few in recent month and all were relatively ignorant of the full up-to-date pension rules. I'm a big boy, I can read, I know exactly the situation I'm in and the correct way forward but can't do it without an IFA sign-off. Two just said 'no' because it's their policy, just to say no regardless of individual circumstances and the other said they would but only if I transferred my whole pension on to their (ridiculously expensive) platform. When I said no, he presented a bill which I have refused to pay and have reported him to the FCA - who initially agreed with the IFA (since it's their fees that pay for the FCA). In the end I had to start a claim in the small claims court: the IFA has now backed off but will not admit that the advice solely in his interest, not mine.

I understand that many people aren't up to speed and probably would benefit from some (sensibly priced) advice but, if the intention is to maximise benefits/income for the pensioner, there must be a way to completely avoid IFAs for those who choose to do so.

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Mark Barrett

Jul 26, 2017 at 17:49

So increase the funding for Pension Wise and get those advisers fully up to speed.

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Tyrion Lannister

Jul 26, 2017 at 19:03

PaulSh, I agree.

I'm in the process of transferring a final salary pension into my SIPP. The TV is 40X income so I have no doubt it's the right move, also my personal circumstances make it even more compelling. However, government rules force me to do this through an IFA, this will cost me £5,000!

I'd have been happy taking a pension exam to avoid this charge. The nanny state is one thing, but when it costs you money to manage your own finances, that's a step too far. I can understand the government wanting to stop people risking their money unwisely, so a pension test would be an ideal compromise.

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Al via mobile

Jul 26, 2017 at 19:17

Can people withdraw the 25% tax free allowance without losing the right to contribute more than 10k (soon to be 4k) or not? I have had different answers to this question from different 'experts '. If the answer is yes; what recycling is the MAC supposed to be preventing since the rest is taxed on withdrawal in any case

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Jul 27, 2017 at 10:55

If you have the time to spend more than a few hours in front of your pc then its all there. Just a case of sifting through the misinformation to find the facts. Yes, it is complex but after a while things do become clearer. Aside from the many fact-sheets etc., there are forums with lots of clued-up individuals willing to share their wisdom and experiences.

I am one of those wary of IFAs although readily concede there are circumstances where they can add value. Of course there are many erudite and reasonable IFAs out there. But also snake-oil salesmen, some of whom operate within established and big brand names. Very much a case of caveat emptor and if one does see the need to seek advice then carry a long spoon.

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A Person via mobile

Jul 27, 2017 at 12:59

It's not rocket science although the industry would have the public thinking otherwise. We should expect adequate and robust advice without the need to seek additional IFA guidance. What is PW doing if not just that?

Replacing token illustrations by making actual calculations easily accessible for each individuals circumstances would go a long way to start. Ros is now clearly on the private sector payroll. No need for expensive IFAs here, we're already paying for multiple public bodies to do the job...

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Jul 29, 2017 at 10:15

Better still, simplify the tax rules so that none of this nonsense is required and IFAs can do something more useful with their lives.

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Broomtree via mobile

Jul 29, 2017 at 12:07

I don't see what the fuss is about, I'm liking to take my lump sum which will mean moving my current pension into draw down - I will leave current SIPP running and the £4,000 restriction on contributions will only apply when I start drawing income / HL made me aware of all this over the phone

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Aug 01, 2017 at 12:51

Mikesmusing - absolutely correct. Pensions rules have become unnecessarily complicated so that a succession of interventionist Chancellors, who patently don't understand pensions, can raise a bit of revenue on the sly. Is it any wonder people are reluctant to save for retirement when it's a political football.

Altmann may be right about Pension Wise but as a former pensions minister she presided over some of this mess. Perhaps she could help Hammond and Co take their heads out of the sandy spreadsheets so they can see the wood rather than the tree roots - to mix a metaphor or two!

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