“There are potentially tens of thousands of savers in flexible drawdown who have not been able to make contributions for a number of years who will suddenly be able to pay up to £10,000 a year into money purchase schemes,“ says Gareth James, AJ Bell Technical Resources Manager. “This will be attractive to many but will come with a sting in the tail in the form of a HMRC fine if they fail to meet the reporting requirements”.
James continues: “There has to be a danger savers will not pass on some of the necessary details, as they are simply not aware that they need to, even though the rules will apply to all of those in flexi-access drawdown.”
Under the new reporting rules, pension scheme administrators must provide additional data to most scheme members within 31 days of the saver accessing their new pension freedoms. If the saver then contributes they must tell pension schemes that they are restricted to the £10,000 allowance.
However, the rules do not oblige pension scheme administrators to offer information to those who were already in flexible drawdown potentially meaning those savers may not be aware of the requirements.
Notes for Editors
- Since last March's Budget, the Government has outlined a series of pension reforms which are due to come into force from 6 April 2015.
- The annual allowance for contributions to all of a person's pensions is currently £40,000 a year, but someone currently in flexible drawdown has an annual allowance of zero.
- From 6 April 2015 someone who was in flexible drawdown will be allowed to pay £10,000 a year to money purchase schemes, including SIPPs.
- Failure to meet the reporting requirements within a total of 91 days can lead to a fine of £300 plus £60 for each day by which the eventual report was overdue.