[ad_1]
Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Thousands of investors with large pension pots have been left in limbo after Rishi Sunak announced a snap general election before parliament fixed errors in tax rules.
Advisers have warned that an incoming Labour government could ditch or delay the fixes as it rolls out its own agenda on tax and pensions.
“Clients have been left in total limbo,” said Andy King, pensions technical specialist, with Evelyn Partners, the wealth managers.
The problem affects people who took advantage of an “enhanced protection” arrangement introduced in 2006 to ensure those with the largest funds were not unfairly hit by the imposition of a new £1.5mn tax-free cap known as the lifetime allowance.
Even though the Conservatives scrapped the lifetime allowance in April, errors in the legislation affected people who relied on the enhanced protection arrangements giving them the right to take out more than £375,000 in tax free lump sums.
In April, HMRC advised those savers to consider delaying their retirement plans until the rules were corrected. Until this week, officials were working with The Investing and Savings Alliance (TISA) and other industry bodies to fix the errors so those affected could access lump sums without the worry of triggering large tax bills, or losing their tax free cash entitlement, potentially worth tens of thousands of pounds.
The Conservatives’ scrapping of the lifetime allowance was welcomed by many savers with the ability to accrue pension pots of over £1mn but the government did introduce new restrictions on lump sum withdrawals, capping the tax-free allowance at £268,275 and £1,073,100, including for lump sums withdrawn after death.
Those with the right to take out bigger lump sums could be caught by the new caps because of the way the law was drafted.
Alasdair Mayes, partner with LCP, the actuarial firm, said: “Some of the technical issues [in the Finance Bill] meant some lump sum protections [secured in previous years] didn’t quite work.”
King said some of his clients were left in “a totally unacceptable situation”. “I had a query on this yesterday where the client could get an extra £30,000 tax free cash but will have to wait until the fix can be put into a statutory instrument,” he said.
If Labour comes to power, the new government may opt to follow through with the planned legislation but the picture is complicated since Sir Keir Starmer has promised to reintroduce the lifetime allowance cap.
Labour is committed to reintroducing a lifetime allowance, a party spokesperson said.
Mayes of LCP said: “It would be extraordinary if a new Labour government were to take away existing protections for tax-free lump sums.”
Renny Biggins, head of retirement at TISA, estimated that “thousands” of individuals could be affected and said whichever party won the election needed to “pick up what was started”. “People cannot have their retirements only hold forever,” he added.
HMRC declined to comment. The Conservatives were approached for comment.
Additional reporting by Rafe Uddin
[ad_2]
Source link
