Dear client
We are writing to advise you of changes to the mailings we issue in relation to the payment of pension commencement lump sum when benefits are taken using either Capped Drawdown, (if still permitted), or Flexi Access Drawdown.
According to the Conduct of Business Sourcebook produced by the Financial Conduct Authority, members of a pension scheme could exercise their cancellation rights within 30 days only if it was the client’s first drawdown.
The rule in question states that cooling off rights apply to the purchase of a new product only, for example the purchase of an annuity.
His Majesty’s Revenue and Customs determine that the payment of a PCLS or UFPLS is not a new product, which means that cooling off periods do not apply to those payments.
The payment of a tax-free lump sum cannot be undone, and the member’s lump sum allowance will not be restored. The lump sum must be tested against their lump sum allowance at the time the lump sum was paid from their pension scheme.
In the event a PCLS paid into a pension was to be cancelled, this will result in a charge for unauthorised payment if the contributions to the pension scheme are made out of the tax-free lump sums and conditions for the recycling rule are met.
To ensure we remain compliant with the HMRC rules regarding cancelation rights, we will no longer issue cancellation rights when making a PCLS payment.
We understand the trade body TISA are in discussions with the FCA and the HMRC in relation to this issue, but while these discussions take place the stance will remain that cancellation rights will no longer be issued.
More information can be found here - Newsletter 165 — December 2024 - GOV.UK
Kind regards
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