The New Normal Minimum Pension Age Transfer Rules

D. Baker Wealthtime

May 2010


The decision by HM Revenue & Customs that the legislation requires pension paid from a transfer of funds crystalised before 6 April where the member was under 55, either to purchase an annuity or to a new SIPP Provider as having to satisfy the current Normal Minimum Pension Age of 55 or be treated as an unauthorised payment may be strictly legally justifiable but is a blow to common sense and reason. Although the legislation can be interpreted in this way it was clearly not the intention of the draftsman. Particularly, to effectively prevent the purchase of an annuity for up to 5 years or face serious tax consequences is appalling and needs to be reversed as quickly as possible.

It is one of those unintended consequences of the ever more complex and convoluted legislation to which we are subject these days - so much so that it has become almost impossible to draft anything other than the simplest legislation, which does not risk being misconstrued in some way or the possibility of being unintentionally breached. When things get to that stage it is clear that legislation has become just too complex. Some flexibility is required in interpretation otherwise we end up tying ourselves in knots. It would surely have been just as reasonable for H M Revenue & Customs to adopt a more pragmatic view of the legislation and apply it as the draftsman clearly intended.

It is not as though anyone is ever going to complain about such an interpretation because no one is the loser. It is simply a case of HM Revenue & Customs’ lawyers – who do not have to deal with the practical consequences of their advice – wanting to interpret the legislation as exactly as possible. They are of course just doing their job, but making everyone else’s so much more difficult in the process! And to cap it all it was reported recently in the Press that the Financial Services Authority has warned financial advisers they could face negligence claims for failing to advise clients transferring in these circumstances of the possible consequences. I do not believe anyone could reasonably have foreseen this situation and the question of whether particular consequences were reasonably foreseeable is the essence, in law, of any negligence finding. It is to be hoped the Financial Ombudsman will adopt this test.

The present situation reminds me of that in the mid-90’s when drawdown was first introduced, but under the legislation once you had gone into drawdown you could not switch SIPP Provider because the legislation did not cater for it. That took several years for the position to be changed. Let us hope it does not take so long this time round.

HM Revenue & Customs has indicated that they will clarify their position in the near future but if that is just to confirm their original interpretation, then it is of little use. As much pressure as possible must surely be exerted by all interested parties to get amending legislation, made retrospective to cover any cases that have already transferred, introduced at the earliest opportunity which would presumably be the next Finance Bill which will follow the Budget in June. This is essential to avoid the injustice and uncertainty the present situation is causing to both client and adviser.


This article represents the personal views of David Baker and is not a substitute for professional financial advice.


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