Following the introduction of the new pension rules, we have been very concerned to receive calls from a number of customers who have been confused by information given to them by their existing pension provider. Many have been wrongly led to believe that they have no option other than to pay tax on 75% of any lump sum they take from their pension.
Many customers have called their pension provider after the 6th April 2015 and asked to be paid ‘their’ 25% lump sum - clearly meaning the 25% tax free lump sum entitlement that exists within most pension contracts. It therefore came as a surprise when they were told that while they could take 25% of their pension fund as a lump sum, only the first 25% of the 25% they take will be tax free, but they would have to pay tax on the 75% of the 25% pension lump sum they took. No wonder the customer is confused !!!
To be clear, the customer isn’t really being given the answer to the question they are asking. The problem arises from the fact that the pension provider can only discuss what they and their particular product can offer and not what the pension rules allow the customer to do if they use an alternative product or provider. This means that while the answer given to the customer isn’t wrong, it isn’t the full answer.