UK Customs and the regulator have confirmed consumers cannot reverse the tax implications when cancelling tax-free pension lump sums.
HMRC and the Financial Conduct Authority issued statements yesterday (25 September) explaining consumers’ rights when tax-free lump sums are paid back into registered pension schemes.
The tax consequences resulting from financial transactions cannot usually be reversed, except where a transaction falls within the FCA rules that require a cancellation right to be provided.
However, as contracts allowing savers to take a pension lump sum are not listed as cancellable contracts, cancellation rights will not kick in. Once lump sums are paid, the associated tax consequences cannot be undone, even if the payment is returned or cancellation rights are exercised.
While registered pension schemes are entitled to offer cancellation rights, the FCA and HMRC warned they should ensure members are aware of the tax consequences if those rights are exercised.
“Where a consumer has taken a pension commencement lump sum and then wishes to return that money to a pension, tax legislation will affect what firms and their customers are able to do and whether a consumer will incur a tax charge,” the FCA said.
