Government has listened to reason and dropped plans to force anyone taking money from their pension flexibly to notify every past pension scheme
Proposals were unworkable, impractical and would have penalised the poorest pensioners
Pensioners faced hefty fines for failing to find all past pensions within a month
I’m delighted that the Government has changed its plans that would have forced anyone taking more than their Tax Free Cash out of their pension fund after April 2015 to contact every past pension scheme within 31 days. They would have had to tell each old scheme (even ones that they may not have paid into for decades) that they could no longer contribute £40,000 a year to a money purchase pension, as their annual allowance had been cut to £10,000 a year.
These original proposals would have placed an impossible and unreasonable burden on many people, especially those with smaller sums in pensions they had lost track of. There are millions of ‘lost’ pension accounts and often people fail to trace them until they are retired, which is when they actually have time to get their paperwork sorted out. Yet if they failed to find them, they could have faced fines of hundreds of pounds, even though most could probably not afford to put anywhere near £10,000 a year into a pension scheme in future.
The Treasury has now laid amendments to the Taxation of Pensions Bill which will only require current or future schemes to be told and the time limit is extended to 90 days. This is far more sensible and was one of the suggestions in my own response to the Taxation of Pensions Bill proposals. Others, including Labour MPs, had been calling for changes too. It shows that the process of consultation is working.
The original proposals were most unfair. They would have hit those with moderate pension savings, while the better off are most likely to have their financial affairs in good order (and most likely to be able to afford £10,000 a year extra contributions) so would not have faced large fines. Those with larger funds will often have a financial adviser to sort out their financial affairs, while most people with smaller savings do not. So the least well off, who were more likely to have untraced pension accounts, would have ended up paying the fines, even though they had neither the intention, nor the ability, to contribute more than £10,000 a year to a pension scheme. This risked undoing some of the advantages of the new pension regime, which is designed to offer more freedoms to moderate savers who can now have flexible access to their pension funds, just as the wealthiest had in the previous regime. I am delighted that people will not now face fines just because they couldn’t trace old pension entitlements. A victory for common sense in pensions – let’s enjoy the moment!