Aviva Pension Flexi-Access Suspended: Enhanced Protected Tax-Free Lump Sum Withdrawal Issues

I have enquired with Aviva about taking my enhanced protected tax-free amount, roughly 33%, from an old pension which has not been paid into since 2001 and currently stands at around £90k.

I have been informed that I can, but my only option is then to buy an annuity with the rest, either with them or at the best market rate. I cannot put it into drawdown and leave it with them, or transfer out the remaining amount. I can transfer out the whole amount now to another provider, but that would lose my protected/enhanced rate.

They informed me that HMRC sent out guidance to them in March this year and that on 24th September, Aviva suspended all requests on all platforms for flexi-access on protected or enhanced products. Other pension providers have allegedly done the same. Aviva are looking into what to do going forward and are awaiting further guidance from HMRC, but no timescale is known.

I have lodged a complaint with Aviva, as I think they should have informed me of changes that were being considered so I could have acted sooner. Also, am I not, by law, entitled to be consulted/informed if the terms of my pension are to be amended?

I have looked on the HMRC website but cannot see anything about this change, though honestly all the pension rules are so complicated!

This leaves me in a difficult position. I am 63 and still employed, so do not want an annuity, the money from which I would have to pay 40% tax on. I wanted to beat next month's further awful budget and pending stock market disaster. I was hoping to use the money towards home improvements and don't want to take out a loan, so don't know what to do.

Hi Helen,

It is completely understandable to be apprehensive about the upcoming budget and how this might affect the financial landscape. That said, we would expect any large-scale change, especially with pension legislation, to have a lead time to implementation, during which, planning can be undertaken, if this is the right thing for clients. We would not recommend taking pre-emptive action as this could result in a poor outcome and we would always suggest taking professional advice to avoid mistakes.

When it comes to the query, many older pension products with scheme-specific protected tax-free cash only allowed annuity options, as they were created before drawdown was introduced. Under the scheme rules, the client was only ever entitled to an annuity. However, some providers went beyond the scheme rules and offered what’s known as notional drawdown. This meant that although the scheme itself didn’t support drawdown, the provider would record it as being in drawdown on paper to facilitate a transfer to a newer product that did allow it. Aviva, for example, would have done this to enable a transfer into one of their modern drawdown products. This was a helpful workaround for clients, but not something they were entitled to under the original scheme. This practice has been common across the industry for years.

Unfortunately, HMRC has recently updated its guidance to state that this approach is no longer permitted. They’ve clarified that notional drawdown can only be used if the scheme itself offers drawdown. Since these schemes didn’t, providers have had to stop offering this option. This change is entirely down to HMRC, not Aviva.

As this was never an entitlement under the scheme, Aviva has no obligation to consult clients. It was an additional benefit that Aviva was voluntarily offering, which is now prohibited by HMRC. The industry is understandably frustrated and has raised concerns with HMRC, asking for the decision to be reconsidered.

We hope this helps.

We would always recommend seeking advice specific to your plan, and the above explanation is based on our understanding of the position in general.