Mailings

Monday 17 May 2010

Pension Transfers for those in Income Withdrawal under age 55

Following the change in Minimum Retirement Age from 50 to 55 on the 6th April, a problem has arisen for individuals who are currently drawing income via unsecured pension (USP) and have not reached age 55. It appears that options for these people have been curtailed at least until they reach 55.

Two of the main options normally available to individuals under USP are:

1. A recognised transfer of benefits to another scheme whilst continuing to draw income via USP
2. Use part or all of the USP fund to secure a lifetime annuity or scheme pension

However, where such individuals choose either option before reaching age 55, HMRC has indicated that they fall foul of the rules that define authorised pension payments.  As a consequence of this any income payments made after exercising either option are treated as unauthorised which give rise to the tax charges associated with unauthorised payments.

In the case of option 1, where an individual does not take any income under the receiving scheme before age 55 our interpretation is that the unauthorised payment is nil, and the associated charges are nil.

Representations have been made to HMRC from a number of sources (e.g. our trade association AMPS) arguing that this is unfair and an unintended consequence of the legislation.  It is hoped that a positive response from HMRC will be forthcoming soon.  Until then it is recommended that neither of the above options should be pursued by those individuals affected.

One point of detail is that those people with protected pension ages are unaffected provided that where a transfer is involved it is a bulk transfer. 

If you have any queries on these issues, please speak to your usual contact:

The IPS Partnership