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Skandia: confusion over annuities after HMRC drawdown change
by William Robins on Jul 06, 2010 at 12:37
Pensioners buying annuities before age 55 could still be hit with high tax charges despite HM Revenue and Custom's removal of unauthorised payment charges for pre-55 drawdown transfers.
HMRC has removed the maximum 55% unauthorised payment charge. That charge applied to those between 50 and 55 who tried to transfer to another provider money they had taken from their pension before the minimum pension age increased from 50 to 55 on 6 April.
But Skandia pension development manager Adrian Walker (pictured) said that 40% charges would apply to to lifetime annuity purchases made from income withdrawal funds before age 55.
‘HMRC has confirmed that the draft regulations announced in that release do not cover the unauthorised payment charge that will be generated if an individual looks to purchase a lifetime annuity or scheme pension from an income withdrawal fund prior to age 55,' said Walker.
‘In HMRC's note last week there was no line addressing this problem. The only mention of lifetime annuities says that sums underpinning an existing lifetime annuity may be transferred, but to a new lifetime annuity.’
David Trenner, technical director at Intelligent Pensions, said it was likely HMRC would be making a further annoucement allowing annuity purchases.
‘There’s no way they would make these changes if they weren’t going to do it properly,’ said Trenner.
‘They have given four cases, transfering funds from one drawdown arrangement to another, from one annuity to another annuity and so on. I imagine that implies being able to buy an annuity with drawdown funds.’
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7 comments so far. Why not have your say?
Anonymous 1 needed this 'off the record'
Jul 06, 2010 at 13:40
Surely this differs from moving between providers on the same pension basis as moving from USP to an annuity constitutes a BCE where as remaining on the same pension basis and moving between providers does not?
report thisAnonymous 2 needed this 'off the record'
Jul 06, 2010 at 13:55
To anon 1 - Moving from USP to an annuity does not result in a benefit crystalisation event to the best of my knowlegde, it's only on PPP to USP or PPP to annuity....
Re HMRC latest, is this a case of yet another error, this time in the redrafting of the rules? Why don't they discuss it with firms like Skandia BEFORE making the announcement?
report thisAnonymous 3 needed this 'off the record'
Jul 06, 2010 at 14:30
USP to annuity is not generally a BCE, although, there probably is some niche way that it in fact can actually be, where is Mr Bee?? (god I love pensions!)
report thisAnonymous 4 needed this 'off the record'
Jul 06, 2010 at 15:12
Buying a lifetime annuity with USP funds is a BCE (unless under minimum pension age, when it's not a BCE because the payments are unauthorised!).
See RPSM 11104640 which says:
BCE 4 is triggered where annuity purchased from uncrystallised funds or an unsecured pension fund
report thisAnonymous 2 needed this 'off the record'
Jul 06, 2010 at 17:04
To anon 4 - I appear to stand corrected. I tend to think common sense rather than go to the rules first, which would appear a mistake when dealing with legislation drafted in the last 10 years!
What's the logic in a further BCE do you think when moving from USP to an annuity, I can't see one? All providers when moving USP to USP or even USP to annuity seem to ask what % of the lifetime allowance has been used up/remains rather than doing another BCE calculation I think....
report thisAnonymous 2 needed this 'off the record'
Jul 06, 2010 at 17:06
To anon 4 where do I find RPSM 11104640? I searched on HMRC website and it doesn't come up there. I'm not questioning that you are correct, I just want to put in to context what the actual statement says to work out whether it looks like a drafting error or intentional.
report thisDavid Trenner - Intelligent Pensions
Jul 07, 2010 at 07:43
"What's the logic in a further BCE do you think when moving from USP to an annuity, I can't see one? All providers when moving USP to USP or even USP to annuity seem to ask what % of the lifetime allowance has been used up/remains rather than doing another BCE calculation I think...."
This is the 'second crystallisation event'. It was introduced to stop someone who had reached the LTA from taking their tfc and zero income so that they could benefit from fund growth without incurring a tax charge. Buying an annuity from drawdown crystallises any growth on the fund.
http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM11104640.htm
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