The pensions industry faces calls from within to do more to make its customers aware of the potential tax traps of accessing pension cash.
From April next year savers in defined contribution pension schemes will have new flexibility to take their funds as a cash lump with no requirement to buy an annuity.
Amid signs that a growing numbers of savers are preparing to cash in their pensions in April, there are concerns that many savers are unaware that cash that is not taken as a tax-free lump sum will be subject to income tax.
The regulator has proposed a new requirement on providers to give their customers a description of the possible tax implications when they apply to gain access to some or all of their pension fund using any of the options available.
However, some within the industry who are undertaking tax safety checks say the industry could act sooner.
“When people make a decision to buy a retirement income product from Fidelity we check their decision against what we know about them,” said Alan Higham, head of retirement at Fidelity.
“And if their decision looks at odds with what we know about them, we will question people and make them aware that they might have an issue with tax because that point may have got lost somewhere along the line.
“We think safety net checks are a vital point. Everybody should do them, not just Fidelity.”
The Association of British Insurers, which represents pension providers, said it agreed with the FCA’s proposal.
“We recognise the importance of people being aware of any possible tax implications when considering their pension options – especially when thinking about taking all their pension pot as cash,” said Yvonne Braun, ABI’s head of savings, retirement and social care.
“For detailed advice on their own, individual tax circumstances people would need to speak to a tax specialist.”
The regulator’s consultation on its proposed rules ends on September 22.