After the introduction of the new pension regulations, we have been very disturbed to receive calls from a number of customers who have been confused by information provided to them by their current pension company. Many have been incorrectly led to believe that they have no option other than to pay tax on 75 % of any lump sum they take from their pension.
Lots of individuals have contacted their pension provider after the 6th April 2015 and requested to be paid 'their' 25 % lump sum - undoubtedly meaning the 25 % tax free lump sum allowance that exists within the majority of 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 initial 25 % of the 25 % they obtain will be tax free, but they would need to pay tax on the 75 % of the 25 % pension lump sum they took. No surprise the customer is perplexed!!!
To be clear, the customer isn't really being presented with the solution to the question they are asking. The complication rises from the fact that the pension provider can only speak about what they and their specific product can offer and not what the pension rules allow the customer to do if they use an alternative product or provider. This indicates that while the answer given to the customer isn't incorrect, it isn't the full answer.