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Cancellation rights
HMRC provided clarification in HMRC newsletter 173 on the tax treatment of cancellation rights.
This impacts on our pension and annuity products.
What is changing
With immediate effect, we will now only offer cancellation rights on:
- A customer purchasing a new product, for example a new Income Release plan. If a customer does decide to cancel their Income Release plan, they would not reverse the tax consequences of the Pension commencement lump sum (PCLS) payment.
Existing contracts:
- A customer cannot cancel an UFPLS, small pots or other lump sum payment under any circumstance.
- On Income Release plans, a customer will not receive cancellation rights on tax-free or taxable withdrawals.
- IR Switch On is not treated as a new product and therefore a customer will not receive cancellation rights.
Frequently asked questions
Does this apply immediately?
Yes, to ensure compliance with HMRC guidance.
What about instructions submitted before this communication?
The recent guidance has clarified the HMRC position on cancellation rights. Therefore we believe it is in ours and your client’s best interests that we don’t offer cancellation rights on existing contracts.
Is all your documentation in line with this change?
We are in the process of updating all customer facing literature to bring them in line with HMRC guidance.
Key takeaways
- Headline: “Once a withdrawal is paid, Royal London will not accept it back. This includes taxfree cash.”
- Why: “We are aligning with HMRC’s clarified position so there is a consistent and compliant approach.”
- New plans vs existing: “Statutory cancellation rights for new plans still apply, but they do not create a mechanism to ‘return’ PCLS without tax consequences.”
- What to do: “Advise your clients accordingly when they plan to take pension withdrawals”.
