HMRC has been condemned for moving ‘at a snail’s pace’ to resolve uncertainties around the tax implications of the Lloyds Bank judgment on GMPs by Royal London policy director Steve Webb.
In its March 2019 ‘pension schemes newsletter’, HMRC has announced that it is only now to set up a ‘working group’ to look into these issues, which will not have its first meeting until next month. HMRC said:
“Guaranteed Minimum Pension (GMP)
A working group is being formed to consider the pension tax issues arising as result of GMP equalisation. The group, which will be chaired by HMRC and include selected industry representatives, will work alongside other industry groups who are looking to address the wider issues arising from the equalisation of GMP. The first meeting of the group will take place in April 2019. We’ll continue to provide further updates and information in future pension schemes newsletters.”
One issue of concern in particular is whether a saver whose pension is increased as a result of GMP equalisation could find that they have inadvertently invalidated their ‘fixed protection’ against cuts in the Lifetime Allowance for pension tax relief. In extreme cases this could mean that someone who thought they had locked in to an LTA of £1.8m is now faced with an LTA of £.103m and potentially faces a six figure tax bill.
Whilst many schemes are yet to equalise for the effects of GMPs, some have already done so and others are planning to do so shortly so that they can be moved to buyout. Until HMRC resolves this matter, savers will remain at risk of unexpected and huge tax bills.
Steve Webb, Director of Policy at Royal London said:
‘HMRC are proceeding at a snail’s pace when it comes to resolving the uncertainties created by the Lloyds Bank ruling on GMPs before Christmas. There are savers at risk today of facing huge tax bills because a GMP adjustment invalidates their protection against lifetime allowance tax charges. Yet all we are promised is a new working group which has not yet started to meet. HMRC needs to appreciate that savers need to know where they stand and treat it with far greater urgency’.
About Royal London:
Royal London is the largest mutual life insurance, pensions and investment company in the UK, with assets under management of £139 billion, 8.6 million policies in force and 4,348 employees. Figures quoted are as at 30 June 2020.