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What do Michael J, Arnold and Cher have in common?

Author Image Mark Devlin Technical Manager
3 minutes read
Last updated on 17th Jul 2018


As a sci-fi geek and former Physics student, the concept of time travel often intrigues me. This also explains the title of the article, as all three have had links to time travel, or in Cher’s case she wished she could.

But until the publication of Pension schemes newsletter 99 on 30 May 2018 time travel was a wish for many in the industry (providers and advisers alike) that was high on any wish list. I am referring to making a genuine error for an authorised pension payment, a subject that has had many an unintended consequence.

So what does this mean?

At an industry forum, HMRC were asked if their genuine error guidance was intended to apply only where the provider made said genuine error. From a provider point of view this was a handy way to correct their mistakes and unwind any unintended consequences, however, for financial advisers or agents acting on the clients behalf this meant that these errors became a fixed point in time and couldn’t be altered, even when the error was obvious. HMRC told the forum they were changing their guidance. Thankfully, their newsletter followed soon after.

As an example of an error that could be made, let’s assume that a client approached their adviser for £60,000 as a pension commencement lump sum, and wanted no income. To achieve this you have to crystallise £240,000 of benefits (with £180,000 being designated to drawdown). If an error was made say £240,000 was requested as an Uncrystallised Funds Pension Lump Sum (UFPLS), and the provider paid that out, then purely looking at the rules an UFPLS was requested and paid out, so can’t be unwound.

Based on the above error not only has the Money Purchase Annual Allowance (MPAA) been triggered, but the client will also be paying some additional rate tax and their personal allowance will be lost as they have £180,000 of taxable income for the year. That’s before any other income sources are taken into account!

But thanks to the info provided in Pension schemes newsletter 99 these errors can now be unwound, provided all of the following conditions are met;

  • there’s a clear authority for the IFA or agent to act on behalf of the member
  • there’s a clear instruction from the member as to what form the transaction should take
  • as a result of a clerical error the form of the transaction is not what the member intended
  • the error is spotted and reported to the scheme immediately
  • had the error been made by the member the scheme administrator would have applied the genuine error guidance

Whilst there is no further guidance on what immediately means, it’s reasonable to assume a standard dictionary definition would be acceptable, so double checking the transaction that has happened was what was intended is key here.

In terms of clear instruction on what form the transaction should have taken, keeping a clear audit trail of any client instructions should aid in this requirement. If this is based on advice given, the suitability report should detail what the instruction was meant to be.

So taking the example above, if the money the client received is returned to the scheme, the payment and trigger of the MPAA can be unwound, so you are back in time to the starting position, and the correct transaction can take place.

However, the above rules are not without exceptions. In the following cases the genuine errors rules won’t apply:

  • the member has changed their mind
  • the error is more than clerical
  • the adviser or agent has given advice they now regret and wish to undo the transaction

So effectively if anyone changes their mind these rules won’t help, and care will need to be taken for errors that they are not more than clerical, perhaps detailing a specific monetary amount of tax free cash (i.e. crystallise £20,000 and place £80,000 into drawdown, and forgoing the maximum PCLS) then this may be defined as more than clerical and could not be unwound. 

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