HM Revenue and Customs has advised some clients to delay taking their pension benefits or transferring until it can fix incorrect legislation relating to the lifetime allowance abolition.
In a newsletter, published yesterday evening (April 4), the tax authority set out some examples where certain people should hold off making changes to their pension until LTA regulations are corrected.
The newsletter was published a little over 24 hours before the LTA is due to be abolished - on April 6.
The LTA was scrapped at Budget 2023, with chancellor Jeremy Hunt insisting it would be done by April 2024 despite warnings about the tight timeframe. This timeframe was reiterated in last year's Autumn Statement.
The legislation to abolish the lifetime allowance was being pushed through in quick timescales and the industry has said that there has been insufficient time to deliver a change of this magnitude.
In the newsletter, HMRC said any case which involves the following should request a delay to the payment/defer their request to transfer:
- scheme specific tax-free cash protection
- a transfer of a case with enhanced protection
- enhanced protection and primary protection cases with protected lump sum rights of more than £375,000
- the payment of a lump sum death benefit from funds which crystallised before April 6, 2024
- any transfer from drawdown to a Qrops
- any transfer to a Qrops which involves pre-April 2006 benefits.
Andrew Tully, technical services director at Nucleus Financial, said this would affect a minority of individuals but some may be reaching their intended retirement age or have made plans to take benefits.
He added it was not ideal HMRC was suggesting at this late stage for action to be delayed given some people may have made plans or given commitments based on the tax-free cash or income they were due to receive.
Tully said: “To suggest at such a late stage that people should delay taking benefits or transferring shows how poorly these changes have been implemented.
“We are only a few days away from implementation so some advisers and customers will have made plans and committed to use funds.
“Now HMRC is effectively delaying payments to customers or stopping them taking certain actions whilst it fixes incorrect legislation. It’s a bit of a shambles.”
HMRC has not yet set out a timetable for resolution but Tully said it could take months.
A government spokesperson said: “For the vast majority of schemes and their members, all the legislation necessary to implement the LTA abolition was published in Finance Act 2024.
“Feedback from industry has highlighted a few areas where further technical changes are required. HMRC is committed to working closely with industry to support schemes and members where they would benefit from waiting for these changes.”
Last week FT Adviser reported HMRC had provided an update on the number of areas it believed the legislation was currently wrong for LTA abolition.
HMRC admitted it had received several questions on when further regulations might be introduced.
It stated: “We will confirm timings as soon as possible, however it will not be before April 6, 2024. The regulations will be retrospective to this date.
“Given this, HMRC is also aware that industry will require guidance on how to operate affected areas during the interim period. Guidance will be provided as soon as possible.”
