Opinion Former Article

A new service to close pension freedoms advice gap essential, says LITRG

The Low Incomes Tax Reform Group (LITRG) is calling on the new Money and Pensions Service (MAPS) to urgently consider setting up a free pension freedoms advisory service to help those on low incomes.

In response to MAPS’ ‘listening document,’ LITRG recommends that MAPS should play a central role in funding and delivering a pension freedoms advice service. This is because the existing written guidance model offered through Pension Wise is inadequate, says LITRG.

LITRG said its recommendation will help to tackle the problem of people withdrawing their entire pension pots and putting the money in the bank instead – triggering potentially avoidable tax charges and benefit withdrawal issues. For those with only small pension pots, for whom every penny counts, such mistakes can increase their risk of slipping into poverty in older age.

Victoria Todd, Head of LITRG team, said:

“Pension Wise was set up to provide guidance around the various options available for those seeking to make use of their pension pots. But guidance is not the same as advice and there are many people out there who are unable to afford to pay an independent financial adviser (IFA) or who have smaller pension pots that make finding an IFA difficult.

“People on low incomes do not necessarily have hugely complex financial affairs, but often they can struggle to understand and knit guidance together, so need a more managed, tailored approach, based on their individual needs and circumstances.

“When it comes to tax, not only do people need to understand the tax impact of different pensions choices and how they might be mitigated but they also need to understand when and how any tax due will be collected. Even if there are no direct tax consequences, for example because their total taxable income remains below the personal allowance, a withdrawal could nevertheless have a deleterious effect on benefits if the income or capital goes above a threshold where benefits become restricted or simply unavailable.

“MAPS’ vision is ‘everyone making the most of their money and pensions’ – we wholeheartedly agree with this vision and fixing the advice gap would be a good starting point to achieving it. In conjunction, an automatic default into an advice appointment, would provide an extra layer of protection for the most vulnerable.”

Until then, LITRG recommends that those who are about to take their pension, and who cannot afford professional advice, should carry out additional research on top of any information they may have received from Pension Wise. LITRG’s website has excellent guidance and people may be able to get practical support with tax issues around pension freedoms from the charity Tax Help for Older People.

Notes for editors

1. Under pension freedoms (sometimes also called pension flexibility), introduced from April 2015, individuals are essentially able to do whatever they like with their defined contribution or money purchase pension funds from age 55 – for example buy an annuity, take the whole fund in one go or keep it invested and drawdown some money each year.

2. LITRG’s submission to MAPS can be viewed: https://www.litrg.org.uk/latest-news/submissions/190702-money-and-pensions-service-–-listening-document

3. LITRG’s website guidance on pension freedoms can be found: https://www.litrg.org.uk/tax-guides/pensioners/what-tax-position-when-i-take-money-my-pension-flexibly

4. Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
Out of hours contact: George Crozier, 07740 477 374)

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