Pensions flexibility and lump sums paid after 27 March
23 April 2014
On 27 March the government announced it would bring forward legislation in Finance Bill 2014 to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next, instead of buying a lifetime annuity.
In April HMRC provided more information to help people who want to use the new flexibility. This information is for people who have:
- received a tax-free lump sum on or before 27 March 2014
- either cancelled an annuity contract within the cooling-off period on or after Budget day (19 March 2014) that was linked to that lump sum or not yet decided how to access the rest of their pension savings.
Further detail is set out on HMRC's website on whether or not the unravelling of actions that were taken shortly before the Budget changes were announced will give rise to a tax charge.
This information relates to how the tax rules will apply. The options available to you will depend on what your pension scheme decides to allow. All references to an annuity mean a lifetime annuity.
It has been highlighted through HMRC’s Stakeholder Forum that HMRC’s announcement was not clear on the proposals for how the legislation will apply to people who receive their lump sum before becoming entitled to a relevant pension and after 27 March 2014.
HMRC has confirmed that the policy intention is to give as much flexibility as possible to individuals wanting to defer their final decision about how to access their retirement savings until 2015-16. The Finance bill legislation will therefore extend the 6 month period for those with lump sums paid after 27 March until October 2015 on the same basis as for lump sums paid on or before that date.
HMRC has updated the information on their website accordingly.