The FCA has issued a reminder today to firms that cancellation rights do not exist for pension commencement lump sums (PCLS).

The warning comes shortly after HMRC highlighted potential tax charge issues in a newsletter today explaining how tax legislation applies to tax-free lump sums and the tax implications should a saver change their mind.

The FCA said it issued its warning in order to help firms understand the statement from HMRC.

The FCA COBS 15.2 rules protect the right to cancel when a consumer enters certain financial contracts.

In the context of pensions, these specified contracts include pension transfers and a contract to join a personal pension scheme. Pension commencement lump sums contracts are not listed under these rules as a cancellable contract.

The regulator said: “We do not tell firms how to structure pension commencement lump sums in their contractual arrangements with customers. This is a design choice for firms. In making that choice, firms should consider the interplay with tax legislation.”

Alasdair Mayes, partner at consultancy LCP, said the statements from HMRC and the FCA today have clarified ongoing discussion as to whether people could use 30-day cancellation rights under certain policies to undo their decision.

He said the statements make it clear that the position depends on the precise wording in the contract.

He said: “The latest statements by HMRC and the FCA are a reminder that people should think very carefully before making major financial decisions based on speculation about what might be in the Budget. 

“In particular, in many cases it may be impossible to undo the tax implications of such a decision if it turns out – again – that there is no Budget change to pension tax relief.  For example, people who try to reverse their decision after a Budget may find that they have irreversibly used up some of their lifetime limit of tax-free lump sums. 

“The exact rules clearly depend on the precise nature of the transaction and individuals need to be sure that they understand the full consequences of any decision taken in advance of the Budget.”