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HMRC internal manual

Pensions Tax Manual

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Member benefits: pensions: drawdown pension rules immediately before 6 April 2015: flexible drawdown pensions - making a declaration (up to 5 April 2015)

Glossary PTM000001
   

Information a scheme administrator needs if a member wants to use flexible drawdown (up to 5 April 2015)
Taking flexible drawdown more than once under the same arrangement
Flexible drawdown declarations that cover more than one arrangement (up to 5 April 2015)
Tax consequences as a result of an invalid declaration (up to 5 April 2015)

Note: Flexible drawdown funds in existence immediately before 6 April 2015 are from that date automatically treated as flexi-access drawdown funds, which have different rules. No new flexible drawdown funds can be set up from that date. For guidance on flexi-access drawdown funds, see PTM062700.

Information a scheme administrator needs if a member wants to use flexible drawdown (up to 5 April 2015)

Regulations 2 and 3 The Registered Pension Schemes (Prescribed Requirements of Flexible Drawdown Declaration) Regulations - SI 2011/1792

To qualify for flexible drawdown a member must give a declaration to their scheme administrator. This declaration must be signed and dated and contain the following information:

  • full name and address
  • National Insurance number, and
  • details of each pension source that allows them to meet the minimum income requirement (see PTM062590).

The details needed to give the scheme administrator about each source of pension income are:

  • the name and address of the person paying the pension, and
  • the total amount of pension income payable in the tax year in which the drawdown declaration is made.

The declaration must also contain statements from the member to confirm that:

  • the flexible drawdown conditions are met
  • the contents of the declaration are correct and complete to the best of the member’s knowledge or belief, and
  • if they have previously made a flexible drawdown declaration, this declaration was accepted by the relevant scheme administrator.

If they do not give a complete, signed and dated declaration containing this information to their scheme administrator they do not qualify for flexible drawdown. Any drawdown pension will be capped drawdown. Under the Regulations there is no facility for making a declaration on-line as it has to be signed in writing.

If the member is not entitled to a National Insurance Number for any reason, they must tell their scheme administrator this. If they have a unique tax reference number then they should give this to the scheme administrator. An alternative process will then be applied and their declaration can still be valid. The scheme administrator should be able to provide information about this alternative process. This alternative is only for the relatively few instances where a member may not be entitled to a National Insurance Number. It does not cover the situation where they have forgotten or lost that number.

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Taking flexible drawdown more than once under the same arrangement

A member can arrange their affairs so that they designate funds into drawdown pension at different times. Flexible drawdown works at arrangement level. So, if a member is designating funds under an arrangement where they are already using flexible drawdown, they do not need to complete another flexible drawdown declaration.

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Flexible drawdown declarations that cover more than one arrangement (up to 5 April 2015)

Provided the other conditions for flexible drawdown are met and the declaration is valid and accepted by the scheme administrator of the scheme in which the arrangement is held, a flexible drawdown declaration may cover more than one arrangement subject to meeting the conditions set out below.

Where a declaration has been accepted, it must result in the member becoming eligible to receive flexible drawdown pension. This means they must have designated sums or assets in an arrangement as available for the payment of drawdown pension. Together with the flexible drawdown conditions, this means that a multiple arrangement declaration can only apply to arrangements where they have made a designation and will be taking flexible drawdown. The declaration should make it clear which arrangements it covers.

A multiple arrangement declaration will not cover:

  • arrangements where no designation has occurred at the time the declaration is made
  • arrangements set up after the declaration has been made (whether or not this is to receive a transfer)
  • arrangements the member has in a different registered pension scheme, even if both schemes have the same scheme administrator.

And it must be remembered that the scheme administrator has to be prepared to accept a multiple declaration, they are not required to do so.

If a member makes a flexible drawdown declaration covering multiple arrangements in one of the registered pension schemes in which they have money purchase arrangements, and then transfers into a new arrangement in that scheme either a drawdown pension or funds from an arrangement from which they have not yet taken any benefits, they will have to make a further declaration to take these funds as flexible drawdown. But if the transferred funds are put into one of the arrangements covered by their declaration, a further declaration isn’t needed.

Conversely, if a member has made a valid flexible drawdown declaration which the scheme administrator accepted and so started to receive their pension as flexible drawdown, they do not have to make a further declaration if they transfer this pension to another registered pension scheme. The second scheme administrator can continue to pay the flexible drawdown pension as though it is the same pension so the member does not need to make another declaration.

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Tax consequences as a result of an invalid declaration (up to 5 April 2015)

If a flexible drawdown declaration turns out to be invalid, for example due to it containing incorrect information or not being signed, then any pension actually drawn will have to meet the requirements for capped drawdown. This means that any amount paid in excess of the capped drawdown limit will not be drawdown pension and may be an unauthorised payment.

The member may be subject to a penalty if they fraudulently or negligently give incorrect information on their declaration.