28Apr

FCA publishes business plan

Consumer credit firms make up around two thirds of the total number of firms regulated by the Financial Conduct Authority (FCA), and these firms have been put on notice to expect further close scrutiny in the coming 12 months.

Publishing its Business Plan for 2017/18, the FCA said its main priorities included:

• Preparing for the UK’s withdrawal from the EU
• Alerting consumers to the August 2019 deadline for making payment protection insurance claims
• Long-term savings and retirement outcomes – reference was made to conducting a review of pension drawdown non-advised sales, and the introduction of the Pensions Dashboard
• Improving competition in a number of sectors
• High-cost credit, with a view to considering whether additional measures are required, similar to the cost cap which already affects payday lenders
• Treatment of vulnerable customers

As regards the last of these, the term ‘vulnerable’ could refer to customers from any sector, and all financial firms are expected to have procedures in place that allow them to identify vulnerable customers, and are also expected to take steps to ensure that vulnerable customers are treated fairly.

However, the issue of vulnerable customers also has particular significance for credit firms. The FCA has remarked on a number of occasions that the very fact a customer has taken out some form of credit product, or maybe entered into a debt management solution, could be an indicator of their vulnerability.

The FCA’s Plan lists a number of issues relevant to the consumer credit sector, which include:

• Whether customers in financial difficulty are being treated fairly
• Inadequate affordability assessments, leading to customers being unable to maintain their repayments
• Whether customers are being provided with clear information to allow them to compare the options available
• Poor conduct on the part of some firms may be causing financial detriment and other adverse outcomes for customers

In his foreword to the Business Plan, FCA chairman John Griffith-Jones urged all authorised firms to ensure that their corporate culture was one that resulted in good outcomes for customers. Mr Griffith-Jones said:

“There is a clear link between poor culture and poor conduct, and the industry must continue its work to achieve and embed cultural change.”

Later on, the Business Plan says on this subject:

“We expect firms to have effective governance arrangements in place to identify the risks they run – with a strategy to manage and mitigate those risks to deliver appropriate outcomes to consumers and markets.

“Firms’ senior managers have a crucial role in demonstrating that they are accountable and responsible for their part in delivering effective governance. This includes taking responsibility, being accountable for their decisions and exercising rigorous oversight of the business areas they lead.

“Boards have a critical role in setting the ‘tone from the top’. We expect them to take responsibility for their firm’s culture and its key drivers, ensure culture remains high on the agenda and that an appropriate culture is embedded throughout the firm at all levels.”

The Plan also warns firms that sell complex products that they may also expect to be closely watched by the regulator. This should serve as a warning to firms that carry out pension transfers, or which offer high-risk structured investment products, that they must consider the interests of their clients at all times. All clients must understand the risks of the transaction they are entering into, and firms must provide suitable advice.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

27Apr

CMC director gets 10 year ban

At present, the Claims Management Regulator at the Ministry of Justice (MoJ) does not have the power to impose fines and bans on individual senior managers, and its enforcement actions are instead likely to be taken against the claims management companies (CMCs) themselves. This contrasts with the regulatory regime operated in financial services by the Financial Conduct Authority (FCA), where any individual holding a ‘controlled function’ can themselves be fined, or can be banned from working in the industry for any firm.

However, directors of CMCs would be wrong to assume that there will never be any personal consequences if their companies break the relevant rules and legislation. This was illustrated in April 2017, when the Insolvency Service banned Dean Anthony Spencer from acting as a director of any company for a period of ten years.

Mr Spencer was the director of Swansea-based Claim and Gain, a CMC that specialised in handling payment protection insurance and other financial mis-selling claims. His company repeatedly failed to provide the promised service to its clients, and took upfront fees from clients without their permission. Even though the MoJ warned the company about its practices, it proceeded to take upfront fees from a further 149 clients.

The company’s actions were said to have constituted a breach of Regulation 22 of the Compensation (Claims Management Services) Regulations 2006.

Insolvency Service investigations group leader Robert Clarke said:

“When company directors do not comply with legislation that is designed to protect customers and avoidable losses result, The Insolvency Service will seek lengthy periods of disqualification.

“This should serve as a warning to other directors who may feel tempted to breach customer protection legislation. The Insolvency Service will rigorously pursue directors who deliberately mislead and breach the trust of customers.”

Claim & Gain has been placed in liquidation, with debts totaling more than £650,000.

This latest action by the Insolvency Service comes just one month after Christopher Ross White, the sole director of CMC Rock Law Limited, was disqualified from acting as a director for a period of nine years.

Their reasons for disqualifying Mr White included:

• Forcing clients to enter into contracts during the initial sales call, before they had been given time to consider the documentation
• Inadequate monitoring of the company’s sales agents
• Insufficient training being given to staff
• Failing to maintain appropriate records and audit trails

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

25Apr

CMC enforcement actions – on the increase?

Are the authorities clamping down on claims management companies (CMCs) that break the rules?

In a one-month period between March 10 and April 10, the Claims Management Regulator at the Ministry of Justice (MoJ) took enforcement action against four different CMCs.

Barrington Claims Limited had its authorisation withdrawn after it breached 12 separate areas of the Conduct of Authorised Persons Rules. Many of the breaches committed by Barrington Claims have also been cited in past MoJ enforcement notices concerning other companies. However, unlike many CMCs who have been subject to action, Barrington Claims was in breach of Client Specific Rule 12, which forbids a claims company from stating or implying that their clients have a greater chance of success by pursuing a claim with them, compared to their chance of success were they to pursue a DIY claim.

Other breaches committed by Barrington Claims included:

• Failing to satisfy itself of the merits of a claim before pursuing it
• Not maintaining appropriate records and audit trails
• Failing to ensure that referrals, leads and data obtained from third parties have been obtained in accordance with applicable rules and legislation
• Neglecting to ensure that all information given to clients is ‘clear, transparent, fair and not misleading’
• Engaging in high pressure selling
• Stating or implying that they are connected with the Government, a regulator or a public body; or that the Government has in any way endorsed the company
• Failing to check that clients understand the contracts they are asked to enter into

Help Your Claim was fined £533,000 after it breached Client Specific Rule 4. This rule forbids cold calling in person and asks that any marketing by telephone, email, fax or text complies with the Direct Marketing Association’s Code and any related guidance issued by the Association. Additionally, the company failed to ensure that information provided to clients was clear, transparent, fair and not misleading; and is also said to have engaged in high pressure selling.

Stevenson Drake was fined £10,000. It failed to take reasonable steps to confirm that any referrals, leads or data obtained from third parties were sourced in accordance with the rules. Similar issues were identified at TDP Direct Marketing, which received a fine of £6,600.

The past month has also seen two senior managers of CMCs disqualified from acting as directors for an extended period of time.

Dean Anthony Spencer, the director of financial claims CMC Claim and Gain, was disqualified for 10 years after his company repeatedly failed to provide the promised service to its clients, and took upfront fees from clients without their permission. Even though the MoJ warned the company about its practices, it proceeded to take upfront fees from a further 149 clients.

Christopher Ross White, the sole director of CMC Rock Law Limited, was disqualified from acting as a director for a period of nine years.

The Insolvency Service’s reasons for disqualifying Mr White included:

• Forcing clients to enter into contracts during the initial sales call, before they had been given time to consider the documentation
• Inadequate monitoring of the company’s sales agents
• Insufficient training being given to staff
• Failing to maintain appropriate records and audit trails

CMCs and their directors must be aware of the consequences of failing to meet their regulatory obligations. Companies need to keep a close eye on MoJ bulletins, take note of the points raised, and make any necessary changes to their policies and business practices. With all the recent enforcement activity, it may also be a good time for CMCs to have their compliance procedures audited by an external consultant.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

24Apr

Chancellor says fintech will transform how we do business

“FinTech will transform the way we live and do business,” said the Chancellor of the Exchequer as he addressed the inaugural International FinTech Conference in London.

Philip Hammond MP began by reminding his audience of how Britain had led the way in previous industrial innovations, and made reference to the steam engine, oil refining, modern power stations and telegraph communications.

Moving on, he explained how in the 21st century Britain is leading the way in the development of FinTech. Mr Hammond said:

“Today we are on the brink of yet another industrial revolution. One that has the potential, once again, fundamentally to transform the structure of the global economy, and the way we live our lives. And once again it is British invention and entrepreneurial spirit that is at the forefront of the technologies, such as artificial intelligence, robotics, big data analytics, biotech and FinTech, that collectively are the drivers of what has become known as the Fourth Industrial Revolution.”

Examples of FinTech innovations mentioned by the Chancellor included:

• Cashless transactions
• Biometric banking
• Transmitting money to family who live abroad
• Apps that automatically identify the best savings rate
• Automated compliance systems for firms (RegTech)
• Access to new sources of credit and funding for firms, such as peer-to-peer lending and other forms of crowdfunding

Mr Hammond made reference to new FinTech innovations from Barclays and HSBC, and then went on to emphasise why Britain was so well placed to take advantage of the FinTech revolution, by saying:

“We have the time zone, the language, the legal system, and the talent… in the world’s number one financial centre … and the fastest growing tech centre in Europe.”

The Chancellor told the conference that Britain’s FinTech sector generated almost £7 billion in revenue in 2016, and employs more than 60,000 people. He remarked that accountancy giants EY and Deloitte had both said that the UK was “the best place in the world to succeed as a FinTech firm.”

Mr Hammond went on to speak about FinTech and financial regulation, and made mention of the Financial Conduct Authority (FCA) regulatory sandbox’, where firms can apply for permission to test new ideas without having to follow the regulator’s rules to the letter. He also mentioned the Bank of England’s FinTech Accelerator, where firms can develop innovative central banking solutions; and made reference to an FCA summit where the regulator is looking at how it can do more to support the growth of FinTech.

Mr Hammond concluded by saying to the firms attending the event:

“Help us keep the UK at the forefront of the FinTech revolution. Help us build a truly world-beating new tech sector. Let your ideas, your apps, your services, your equity demonstrate what’s really possible when government, business and regulators all pull in the same direction.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

21Apr

MOJ bans one CMC and fines another

The Claims Management Regulator at the Ministry of Justice (MoJ) has withdrawn the authorisation of Llanelli-based Barrington Claims Limited. The company, which handled financial claims, was found to have breached 11 different sections of the Conduct of Authorised Persons Rules 2014.

Many of the breaches committed by Barrington Claims have also been cited in past MoJ enforcement notices concerning other companies. However, unlike many claims management companies (CMCs) who have been subject to action, Barrington Claims was in breach of Client Specific Rule 12, which forbids a claims company from stating or implying that their clients have a greater chance of success by pursuing a claim with them, compared to their chance of success were they to pursue a DIY claim.

This rule applies to any claim that could potentially be covered by the Criminal Injuries Compensation Authority, the Financial Ombudsman Service (FOS), the Financial Services Compensation Scheme, the Housing Ombudsman Service or any other recognised dispute resolution procedure. Claims concerning payment protection insurance, packaged bank accounts, investment and pension mis-selling, or any other financial service, would typically come under the jurisdiction of the FOS. The FOS has repeatedly produced data showing that consumers’ chances of a successful claim are not in any way boosted by choosing to use a CMC.

The other sections of the rulebook breached by Barrington Claims were:

• General Rule 2a – the need for a CMC to satisfy itself of the merits of a claim before approaching the firm who is the subject of the claim
• General Rule 2d – the requirement to maintain appropriate records and audit trails
• General Rule 2e – which requires CMCs to take reasonable steps to ensure that referrals, leads and data obtained from third parties have been obtained in accordance with applicable legislation and in compliance with the Conduct of Authorised Persons Rules
• General Rule 5 – the general requirement to observe all relevant laws and regulations
• Client Specific Rule 1a – which demands that companies act ‘fairly and reasonably’ in all dealings with clients
• Client Specific Rule 1b – the requirement to provide a service to each client that meets their needs, and satisfies the requirements of the MoJ’s rules
• Client Specific Rule 1c – which asks that all information given to clients is ‘clear, transparent, fair and not misleading’
• Client Specific Rule 3 – the prohibition on engaging in high pressure selling
• Client Specific Rule 6d – which prevents CMCs from stating or implying that they are connected with the Government, a regulator or a public body; or that the Government has in any way endorsed the company
• Client Specific Rule 14 – which requires companies to ensure that clients understand the contract they are asked to enter into

The company’s authorisation to conduct claims management activities was withdrawn with effect from April 10, and as of April 13, its website was offline.

The MoJ has also imposed a fine of £6,600 on Colchester-based TDP Direct Marketing Limited, which trades as The Data Partnership, Social Talk and TDP Marketing. The fine was imposed after the MoJ identified breaches of General Rule 2d and General Rule 2e.

TDP handles industrial injuries and personal injury claims, as well as financial claims.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

20Apr

Director disqualified over his firm’s SIPP mis-selling

Keith Popplewell has been disqualified from acting as a director for a period of nine years, as a direct result of his firm failing to give suitable advice on transfers into self-invested personal pensions (SIPPs).

Many firms have suffered the effects of failing to treat customers fairly when considering SIPPs. A high proportion of complaints regarding this product have been upheld by the Financial Ombudsman Service in recent months, and a number of firms have been instructed by the Financial Conduct Authority (FCA) to cease conducting pension transfers.

However, Mr Popplewell’s disqualification, confirmed by the Insolvency Service in early April 2017, shows how inappropriate financial advice can have far-reaching personal consequences for a firm’s directors. The Service described his actions as a ‘misuse of position’.

Mr Popplewell’s firm, Sheffield-based The Pensions Office (TPO), failed to advise its clients as to the suitability of the underlying investment into which their SIPP contributions would be placed. At least 327 clients of the firm invested some £12 million into storepods. Storepods are a means of self-storage, and are most certainly regarded as high-risk investments.

The firm also failed to conduct six-monthly reviews of the ongoing suitability of the SIPPs for its clients’ financial circumstances.

The Insolvency Service statement said:

“Since at least 16 July 2012 Keith Popplewell misused his position as an approved person with the regulatory authority by failing to ensure that the Pensions Office properly advise its clients on the transfer of low-risk personal and occupation pension products into Sipps and failing to advise clients on the high-risk unregulated underlying investment, much of which was into Storepod investments.

“TPO also failed to take into account financial circumstances, needs and objectives and attitude to risk when advising clients and failed to ensure that adequate systems, controls, risk analysis and management information were put in place.”

Mr Popplewell reacted to his disqualification by making reference to “certain inaccuracies in the Insolvency Service report,” but added that he was unable to elaborate further as the matter was still being considered by his solicitors.

The Financial Services Compensation Scheme (FSCS) has already paid £1.5 million in compensation to the firm’s clients, and the final compensation bill is likely to be much higher – the FSCS says it has compensated just 61 clients to date, and that 169 claims are still being assessed.

The Pensions Office is no longer authorised to conduct financial services activity, after the FCA cancelled its permissions in May 2013. According to the FCA Register, Mr Popplewell is currently ‘inactive’.

Some claims management companies are becoming involved in the pensions advice arena, and are particularly active in pursuing claims on behalf of customers who were recommended SIPPs, when a regular personal pension may have been just as good, if not considerably cheaper.

Firms thus need to be confident that a SIPP is the best option for the client before recommending them. They must also note that they are responsible for ensuring that the underlying investments the SIPP contributions will be invested in are suitable.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

19Apr

FCA publishes progress report and guidance paper on FAMR

After the Financial Conduct Authority (FCA) and the Treasury commissioned the Financial Advice Market Review (FAMR), the Review committee produced a list of 28 recommendations, all aimed at widening public access to financial services, and professional financial advice in particular. The FCA has now issued an update on its progress in implementing these.

The FCA says it has already completed implementation of 10 recommendations.

Key points from the progress update include:

• The FCA has fully implemented the recommendation to change the definition of ‘advice’, so that it is now in line with that used in the Markets in Financial Instruments Directive. Advice must now involve giving a personal recommendation, and firms can give general guidance to clients – such as suggesting they maximise their ISA allowance – without being considered to have given advice to them
• The FCA has completed a consultation on a proposal to extend to four years the period for which an adviser can give advice under supervision before needing to attain an appropriate advice qualification
• The Association of Professional Financial Advisors has published guidance to help firms understand the FCA’s expectations regarding the content of suitability reports. The Financial Ombudsman Service (FOS) was also involved in the discussions
• The FCA has established an Advice Unit to help any firms wishing to develop an automated advice (robo-advice) model
• Consumers can now access £500 of their pension fund to pay their adviser’s fee when seeking advice on their retirement options
• The FCA is consulting on a fundamental review of the way the Financial Services Compensation Scheme is funded
• The FOS has held a number of ‘Best Practice’ roundtables with industry and trade bodies to discuss issues of concern

The FCA warned firms operating streamlined advice services of the risks they were incurring by doing so. It said firms should avoid operating a ‘half and half’ advice process, where clients might be asked to confirm the suitability of particular products. It also said that using a streamlined advice process – where advice is confined to one specific financial need – cannot mean that the need to demonstrate suitability of the product is in any way reduced.

The regulator’s guidance paper says on this subject:

“Although streamlined advice services may be designed to deal with more limited client needs and may not, therefore, involve an analysis of all the client’s circumstances, any personal recommendation which is given to a client through a streamlined advice service must nevertheless be suitable.

“Offering a streamlined advice service, with a narrower scope, does not allow a firm to lower the level of protection due to clients.”

The FCA also revealed that it has rejected suggestions that financial advisers should be required to use an industry standard fact-find when gathering information on client circumstances. One of the reasons behind the FCA’s decision was the varying ways in which different advice firms assess clients’ attitude to risk.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

17Apr

Wonga experiences significant data breach

As many as 270,000 customers may have been affected after a significant data breach at Wonga, one of the UK’s largest and best known payday lenders.

The information stolen includes names, addresses and phone numbers; and more seriously, also includes bank account numbers, sort codes and the last four digits of bank card references.

Up to 245,000 of the affected customers are said to be based in the UK, while the remaining 25,000 live in Poland. The company says it has started making contact with those affected, and that anyone who has not yet been contacted is welcome to call the dedicated helpline it has set up.

In a statement, Wonga said:

“We believe there may have been illegal and unauthorised access to the personal data of some of our customers.

“We are urgently working to establish further details and contacting those who we know have been impacted. The information may have included one or more of the following: name, e-mail address, home address, phone number, the last four digits of your card number (but not the whole number) and/or your bank account number and sort code.

“We do not believe your Wonga account password was compromised and believe your account should be secure, however if you are concerned you should change your account password. We also recommend that you look out for any unusual activity across any bank accounts and online portals.”

The company advised customers to contact their bank and to ask them to look for any suspicious activity on their accounts. It also warned that its customers may now be targeted by scammers and fraudsters who have managed to obtain their personal data.

The Frequently Asked Questions section of Wonga’s webpage on the subject also adds:

“We take issues of customer data and security extremely seriously. Cyberattacks are, unfortunately, on the rise. While Wonga operates to the highest security standards, these illegal attacks are unfortunately increasingly sophisticated. We sincerely apologise for the inconvenience and concern this has caused.”

In a speech in September 2016, Nausicaa Delfas, Director of Specialist Supervision at the Financial Conduct Authority (FCA), warned that even the smallest financial services firms must take the subject of cyber security seriously. She revealed that the number of ransomware attacks rose by 35% in just one year between 2014 and 2015. The number of cyber-attacks of all types being reported to the FCA by authorised firms is also rising alarmingly, from just five in 2014 to 27 in 2015 and to 75 in the first nine months of 2016 alone.

In her speech. Ms Delfas warned firms to take note of the following:

• Firms need to have a ‘security culture’ – everyone from the board to senior management to supervisors and ordinary employees must take the issue of cyber security seriously
• Firms should have ‘good governance’ relating to cyber security – senior management must take responsibility for security in their business function, and boards of directors must challenge management to verify that appropriate arrangements are in place
• Firms must identify what their key assets are, and how they might protect these
All staff need to be trained to recognise suspicious activity, such as phishing emails
• Staff with access to important data should be security screened
• Firms need to have adequate detection capabilities, so that they know straight away if they have been attacked
• Firms must have effective recovery and response procedures in the form of a detailed business continuity plan, which explains what they will do in the event of a security breach to ensure business operations can continue
• Firms need to test their data security measures on a regular basis
• Significant data breaches must be reported to the FCA, as part of firms’ Principle 11 obligations to disclose to the regulators anything of which they would reasonably expect notice

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

14Apr

54 advice firms forced to stop overseas pension transfers

A pension transfer – a transfer of funds from an occupational pension scheme to another form of retirement savings arrangement – is undoubtedly one of the higher risk areas that a financial advisory firm can get involved with.

A recent freedom of information request reveals that 54 firms are currently prevented from carrying out pension transfers, after entering into what are known as ‘voluntary requirements’ with the Financial Conduct Authority (FCA). 16 restrictions of this type were imposed during 2016.

Firms who have been subject to such a restriction include Holborn Assets, whose UK headquarters are in South Manchester. Holborn was required to cease all pension transfer business that was introduced by an overseas adviser until a skilled person review of the firm’s pension advice process was completed. The firm was also required to conduct a historic business review of all its previous pension transfer business, and while pension transfer business referred to Holborn by UK advisers can continue, these transactions must also be checked by a skilled person.

Although an agreement with the FCA to cease carrying out a particular form of business can be described as a ‘voluntary requirement’, breaching the order can have serious consequences. In January this year, Gloucestershire-based advisory firm Bank House Investment Management carried out some 78 transfers that were deemed to be in breach of its voluntary requirement, and was duly ordered to cease all regulated activity.

The FCA had concerns over Bank House’s advice for a number of clients to switch their pension savings into Self Invested Personal Pensions (SIPPs) with high-risk underlying investments. The firm’s voluntary requirement prevented them from switching or transferring any pension plan to a SIPP until it had provided independent verification to the FCA that “a robust and compliant advisory process” was in place for this type of advice. It was also required to have all SIPP switches independently checked.

Clients wishing to transfer £30,000 or more from a final salary (defined benefit) pension scheme are legally required to receive financial advice before switching to an alternative pension arrangement.

Any client who approaches a financial adviser seeking advice on whether to remain in their existing pension arrangement must be treated fairly. The FCA asks firms to carry out a transfer analysis, which must carefully consider: the likely benefits under the existing scheme and any proposed new scheme, the risks of each option and the costs and charges to be paid by the client.

To advise on pension transfers, firms require special permission from the FCA. If within these firms, advice on a transfer is given by an individual without a specialist pension qualification (such as G60 or AF3), then their advice must be checked by someone who is a pension specialist.

The Financial Ombudsman Service (FOS) has recently highlighted another important issue that advisory firms must consider when considering transfers from final salary schemes. Some schemes offer a facility known as ‘partial transfer’, where the client can keep some of their guaranteed income, whilst cashing in the remainder of their fund. The FOS says it has upheld a number of complaints from clients who were not advised to make use of this facility, when it may have been in their best interests to do so.

An FOS spokesperson said:

“We’d look at whether an adviser had considered any key features of the product, for example if a partial transfer was possible or not and whether it was suitable for the consumer to give up safeguarded benefits in the circumstances.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

13Apr

Pension firm reveals consumers paying too much tax on pension withdrawals

Pension provider AJ Bell says it believes that thousands of people have paid too much tax on their pension withdrawals, and also that they are failing to take the opportunity to claim back the overpayments.

The problems stem from the fact that, as pension providers are not typically in possession of customers’ tax codes, they are required by HM Revenue & Customs to apply tax to the withdrawal on what is known as a ‘month one’ basis. This means that they must assume that the same amount is being withdrawn in every month of the tax year, so if £5,000 is withdrawn, the assumption must be made that a total of £60,000 will be withdrawn during the year.

It’s not hard to see how this policy is likely to lead to many customers being drawn into the higher rate income tax bracket, when in reality they should only be taxed at their marginal rate on a one-off withdrawal, or should not be taxed at all if the withdrawal is below the personal allowance.

AJ Bell cites data from the Financial Conduct Authority showing that an average of 139,000 people are accessing their pension funds each quarter. The firm adds that it believes the majority of these have been taxed according to the ‘month one’ method. However, HMRC data suggests only 11,000 people per quarter are making applications for tax refunds on their pension withdrawals.

As we reach the second anniversary of the introduction of the new pension freedoms, the firm comments that the additional tax payablr on a withdrawal of £10,000 is as high as £3,099.

Anyone who believes they are entitled to a tax refund on their pension fund withdrawal would either need to ensure they complete an annual self-assessment tax return, or would need to complete a form such as a P50Z, P53Z or P55.

Tom Selby, senior analyst at AJ Bell, said:

“HMRC’s insistence that an emergency tax code must be applied to pension freedom withdrawals means tens of thousands of people will have paid too much tax on their withdrawals yet very few of them have reclaimed this tax.

“This might be because they don’t know they have paid too much tax or the process to reclaim it just seemed too complicated.

“Whatever the reason, there is likely to be millions of pounds sat with HMRC that could be legitimately reclaimed. It is up to individuals to check whether they have paid too much tax and to make a claim, they are unlikely to get any help from the government.”

Financial advisers have a duty to consider all options when advising clients who are seeking to access their retirement savings. This of course includes informing them of the tax implications of the various alternatives. Consumers who do not use a financial adviser, however, may be totally unaware of this issue, and just how much additional tax they have paid.

Kusal Ariyawansa, an adviser at Manchester-based chartered financial planning firm Appleton Gerrard, said:

“Unfortunately, for people on lower incomes who have no access to advice, this could be a big problem.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.

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