27th July 2018

Prudential: What do Michael J, Arnold and Cher have in common?

As a sci-fi geek and former Physics student, the concept of time travel often intrigues Mark Devlin, Senior Technical Manager at Prudential . 

But until the publication of Pension schemes newsletter 99 on 30 May 2018 time travel was a wish for many in the industry (providers and advisers alike) that was high on any wish list. I am referring to making a genuine error for an authorised pension payment, a subject that has had many an unintended consequence.

So what does this mean?

At an industry forum, HMRC were asked if their genuine error guidance was intended to apply only where the provider made said genuine error. From a provider point of view this was a handy way to correct their mistakes and unwind any unintended consequences, however, for financial advisers or agents acting on the clients behalf this meant that these errors became a fixed point in time and couldn’t be altered, even when the error was obvious. HMRC told the forum they were changing their guidance. Thankfully, their newsletter followed soon after.

As an example of an error that could be made, let’s assume that a client approached their adviser for £60,000 as a pension commencement lump sum, and wanted no income. To achieve this you have to crystallise £240,000 of benefits (with £180,000 being designated to drawdown). If an error was made say £240,000 was requested as an Uncrystallised Funds Pension Lump Sum (UFPLS), and the provider paid that out, then purely looking at the rules an UFPLS was requested and paid out, so can’t be unwound.

Based on the above error not only has the Money Purchase Annual Allowance (MPAA) been triggered, but the client will also be paying some additional rate tax and their personal allowance will be lost as they have £180,000 of taxable income for the year. That’s before any other income sources are taken into account!

Read dull article here

Pensions