Kate Smith, Regulatory Strategy Manager at Aegon said: “Under new rules those who access part of their pension early will have to inform all the pension companies they have savings with or risk hefty fines from the tax man. This administrative headache stems from the fact that the new rules allow people to take money while they are still paying into a pension. Taking money early automatically reduces the annual allowance people have for making tax free contributions to a pension from £40,000 to £10,000. Under the government rules, people will face fines of £300, with the potential for escalation, if they fail to inform all of their pension providers in 31 days that they have started accessing cash and that their annual allowance should be reduced. This sounds complicated, and it is. We believe one of the consequences may be that many people choose to consolidate their pension with one provider before they start taking any pension income in order to avoid the risk of being on the end of a potential escalating tax fine.
“However, those who are close to the lifetime allowance of £1.25 million or who expect to want to make contributions above £10,000 after taking income should seek advice. They may want to retain some small pots separately as they have the option to take three lots of £10,000 under the new small pots rule, get 25% of each tax free, and not trigger the reduced £10,000 annual allowance and they aren’t counted towards the life time allowance of £1.25 million.”
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