Disaster

[Dave]

Hi there

I don't think I can be helped in this but my tale may help others to avoid what just happened to me.

My wife and I have two ISAs with Interactive Investor (II) so when I retired work I thought it a good idea to transfer my DC Pension over to a II SIPP.

I wanted to take 25% out tax free first so I took £1,000 out so that I could get a tax code and rang II up to make sure I had gone about it the right way to get some more of my tax free cash.

I am a novice but I did know there was an issue of crystallized and non crystallized but I was told everything was looking fine. The £1000 duly arrived in my account apparently untaxed. So I took out a further £50,000.

That went into my bank account taxed and when I rang II, the advisor said I had taken out the money via a UFPLS payment rather than as a tax free lump sum.

But the previous advisor had not mentioned that and I hadn't turned up any details of the difference ways of receiving payments on the website.

So the private/ state pension that I get between now and the end of the tax year is going to be charged at 40% tax - which is the exact opposite of what I was trying to do.

I'm so disappointed in the level of advice that was available from II though I guess some of you will say that I should have been more careful and better at researching the issue myself

Anyway, telling the story might stop someone else from making the same mistake. And if there is any advice out there about what I can do to resolve the situation, feel free to pass it on.

I did already speak to Interactive Investor and an advisor said they might be able to somehow amend the payment to make it tax free.

Now four days later, they have come back to me and said that I have to transfer all the money back to them so they can unwind the transaction.

But in the meantime, I have spent £30,000 on shares for me and my wife in my ISA. If they had originally told me to hold onto the money in my bank account, I would have done so. But I can't do that now.

Yours

[mc2fool]

Now four days later, they have come back to me and said that I have to transfer all the money back to them so they can unwind the transaction.

But in the meantime, I have spent £30,000 on shares for me and my wife in my ISA. If they had originally told me to hold onto the money in my bank account, I would have done so. But I can't do that now.

Well, you can. You can undo everything, i.e. sell the shares and withdraw the funds from the ISA and then transfer the money back to them.

It'll very likely end up a net cost (although there's always the possibility that the market moves or has moved in your favour) and then you can put in a formal complaint to try and get ii to compensate you for that, based on their culpability for poor advice. But even if you don't get that it does sound like any loss you make on undoing it all is going to be less than the tax hit you'll take if you don't get it unwound.

[swill453]

I wanted to take 25% out tax free first so I took £1,000 out so that I could get a tax code

I think the mistake or misunderstanding started right here. If all you wanted was tax free cash (i.e. Pension Commencement Lump Sum) then you don't need a tax code, there's no involvement with the PAYE process.

If the pension provider is accepting some blame for bad advice, then maybe they'd be willing to let you take a genuine tax free lump sum from what's left, then you can use that to rewind the erroneous UFPLS transaction.

Scott.

[SebsCat]

When taking pension benefits you have a 30 day statutory right to cancel the transaction. Obviously that means returning any cash withdrawn. If you have invested that cash and cannot get back the full amount by selling then you will either have to bear that loss (as mc2fool says it's likely to be a lot less than the tax hit) or try and reclaim the loss from ii if you believe they've given you the wrong advice.

Whilst I've got other accounts with ii, I've not got a SIPP so cannot comment on the withdrawal process. I've never had reason to phone them either. Do they say something along the lines of "all phone calls are recorded for training purposes"? If so then you can get a recording of the call by making a subject access request. That would clarify whether you had a legitimate claim for any losses or not.

[airbus330]

A salutary tale. I have received compensation this morning from Aviva for an erroneous transaction which caused me a small but un-necessary tax bill. This is the 2nd. time I have had to complain about administrative errors with Aviva and I was compensated the last time too. I hope you lodge a complaint and get some redress. I have noticed a steady decline in the level of knowledge of the staff at various financial institutions I deal with over the past few years.

[Dod101]

A salutary tale. I have received compensation this morning from Aviva for an erroneous transaction which caused me a small but un-necessary tax bill. This is the 2nd. time I have had to complain about administrative errors with Aviva and I was compensated the last time too. I hope you lodge a complaint and get some redress. I have noticed a steady decline in the level of knowledge of the staff at various financial institutions I deal with over the past few years.

Fundamentally II are not in the advising business. They administer ISAs and SIPPs and take instructions from their clients. How could it be otherwise? And they are not mind readers. If the OP wanted a tax free lump sum he should have done his own research and then made it clear to II that that is what he wanted to do and asked them how he goes about that. I know when I took my 25% tax free amount from my SIPP that is what I did (not with II but I imagine they are all much the same in that regard)

IF they get that wrong and you end up with a tax bill then obviously II should compensate the client for their error. It is not though clear that they have done anything wrong. Anyway it sounds as if the OP can probably unwind the whole thing for a modest cost.

Why did the OP want a tax code if not to ensure that the correct amount of tax was deducted from his subsequent payment?

Dod

[MrFoolish]

"Crystallized", "Uncrystallized", "UFPLS". Is it any wonder people get confused? Who came up with all this?

[Dod101]

"Crystallized", "Uncrystallized", "UFPLS". Is it any wonder people get confused? Who came up with all this?

That I think is the point. Keep it simple and use terms that people can understand.

Dod

[BullDog]

I sympathise but here's the rub. A SIPP is a Self Invested Personal Pension. Emphasis on the Self. II will not give advice about how to run a SIPP. I'm guessing the OP isn't the only person to fall into this trap. Maybe there's a way to unwind what's happened with minimum pain.

[WindhoverDave]

A couple of posts here are a tad harsh.
I wasn't looking for financial advice from II.
I had explained that I wanted to take my tax free cash first.
I just asked whether I was doing it the right way.
Surely that's what the advisers are meant to be there for!
I understand the meaning of a Self Invested Personal Pension.
I guess that for a lot of people and that certainly includes me, we do need some help realising our plan.
We're not all as financially literate as some of you, in this brave new world of pension freedoms

[Dod101]

A couple of posts here are a tad harsh.
I wasn't looking for financial advice from II.
I had explained that I wanted to take my tax free cash first.
I just asked whether I was doing it the right way.
Surely that's what the advisers are meant to be there for!
I understand the meaning of a Self Invested Personal Pension.
I guess that for a lot of people and that certainly includes me, we do need some help realising our plan.
We're not all as financially literate as some of you, in this brave new world of pension freedoms

If you feel my post was a tad harsh I am sorry but you say in your original post that ‘you were disappointed in the level of advice you received from II’. If indeed you told them you wanted the withdrawal to be tax free and thus part of your 25% tax free entitlement I would have thought that they could have done that for you and if not they should now be giving you some redress.

It looks as if as always, there is more detail to your story that we do not have. You have not said for instance why you withdrew £1,000 in order to get a tax code. Had the £1,000 been part of the tax free payment you would not have needed a tax code, since tax would not have come in to the consideration.

Dod

[y0rkiebar]

If you asked to take your cash free tax first then ii should not have processed that as an UPFLS transaction, as 75% of such a transaction is taxable.
If you're 100% certain that's what you asked for then you should be able to seek redress from ii and ask for the situation to be made good.

[gpadsa]

A salutary tale. I have received compensation this morning from Aviva for an erroneous transaction which caused me a small but un-necessary tax bill. This is the 2nd. time I have had to complain about administrative errors with Aviva and I was compensated the last time too. I hope you lodge a complaint and get some redress. I have noticed a steady decline in the level of knowledge of the staff at various financial institutions I deal with over the past few years.

Now I'm going OT but what level of compensation should one look for in this kind of situation - I am about to engage with a (different) provider about a series of errors (every year or two) of small sums then a larger £600 error to my detriment last month.

gpadsa

[Dave]

In this world of new pension freedoms, I'd have thought that it would be as idiot proof as possible.

I took £1,000 out first because having looked at various Lemon Fool messages, I thought that you had to get a tax code to stop them taking the tax off my supposedly tax free lump, then me having to claim it back.

I didn't understand what UFPLS was, but I spoke to a II SIPP adviser about taking my tax free allowance who said that what I had done was fine which I presumed to mean that I could take out £50,000 tax free, so that was my next move.

I went through the process of taking the money out of II myself - i didn't at that stage get talked through the transfer by an II adviser. Don't think that's how it works.

I have formally complained and asked for transcripts of my two telephone conversations with II advisers.

I accept I was an idiot for not making absolutely sure that it was tax free - but I took the word of the adviser that if I had done the first £1,000 transfer correctly, the second would be fine.

I now realise the reason the first £1,000 wasn't taxed is that I was within my tax free income limit.

I'm happy to include all necessary information because I think I can't be the only idiot in town and the system needs to be improved so that others don't do the same thing.

I suppose what I would have liked to have happened is for II to have made it clearer during the process of withdrawing the money whether I was being taxed or not.

It's still not obvious to me what in my account represents the crystallised and uncrystallised pots.

It's quite stressful turning a pension that has just built up in the background while you have been working, into a self invested pot that you administer yourself, even if you have been doing ISA's for years, which made me a bit over confident about my abilities probably.

[swill453]

I took £1,000 out first because having looked at various Lemon Fool messages, I thought that you had to get a tax code to stop them taking the tax off my supposedly tax free lump, then me having to claim it back.

As I'm sure you're aware now, you picked this up entirely wrong, you don't need a tax code if you just want a tax free lump sum. All you do is crystallise all or part of your SIPP and they send you 25% of it completely free of tax.

So it seems your first £1000 was taken out as a UFPLS withdrawal. I haven't seen the forms you fill in at II to do this, but at my SIPP provider (AJBell) they make it very clear that 75% of what you're taking out is taxable.

Given that you were, at the time, happy with how that first transaction had gone, perhaps it's no surprise that the II "adviser" was content you knew what you were doing for the second, larger transaction.

It might be worth revisiting the form(s) you filled in for your transaction, and see if they adequately warned you it was (mostly) taxable.

Scott.

[BullDog]

I took £1,000 out first because having looked at various Lemon Fool messages, I thought that you had to get a tax code to stop them taking the tax off my supposedly tax free lump, then me having to claim it back.

As I'm sure you're aware now, you picked this up entirely wrong, you don't need a tax code if you just want a tax free lump sum. All you do is crystallise all or part of your SIPP and they send you 25% of it completely free of tax.

So it seems your first £1000 was taken out as a UFPLS withdrawal. I haven't seen the forms you fill in at II to do this, but at my SIPP provider (AJBell) they make it very clear that 75% of what you're taking out is taxable.

Given that you were, at the time, happy with how that first transaction had gone, perhaps it's no surprise that the II "adviser" was content you knew what you were doing for the second, larger transaction.

It might be worth revisiting the form(s) you filled in for your transaction, and see if they adequately warned you it was (mostly) taxable.

Scott.

Obviously, cannot speak for the OP.

I recently did transactions similar at II myself this year. IMO the process is crystal clear. To the extent I actually got phone calls from II on two occasions double checking that I understood what I was asking for.

I know II gets some flak here. Personally I find it hard to find much to complain about with II.

[Dod101]

As I'm sure you're aware now, you picked this up entirely wrong, you don't need a tax code if you just want a tax free lump sum. All you do is crystallise all or part of your SIPP and they send you 25% of it completely free of tax.

So it seems your first £1000 was taken out as a UFPLS withdrawal. I haven't seen the forms you fill in at II to do this, but at my SIPP provider (AJBell) they make it very clear that 75% of what you're taking out is taxable.

Given that you were, at the time, happy with how that first transaction had gone, perhaps it's no surprise that the II "adviser" was content you knew what you were doing for the second, larger transaction.

It might be worth revisiting the form(s) you filled in for your transaction, and see if they adequately warned you it was (mostly) taxable.

Scott.

Obviously, cannot speak for the OP.

I recently did transactions similar at II myself this year. IMO the process is crystal clear. To the extent I actually got phone calls from II on two occasions double checking that I understood what I was asking for.

I know II gets some flak here. Personally I find it hard to find much to complain about with II.

I agree. As a matter of fact when I took my 25% tax free I was funding a shortfall in a house purchase so I was not exactly unstressed and my transaction went through with no problem. It was with ATS though, not II but I have never found II other than on the ball and efficient. I suspect that the OP misunderstood the rules. Hardly surprising in some ways because of all of these silly terms they keep using.

Dod

[Flummoxed]

My first post as a long time TLF lurker. I have just completed my SIPP transfer to II, crystallised part of it and taken my UFPLS. The whole process was easy and done in under 3 weeks including payment of UFPLS. I have not spoken with anyone at II as it was all done online using the II guides which are lengthy but logical. Part of the reason that I moved to II is that I didn't expect any advice and this is reflected in their fee structure.

I am sorry to hear that the OP did not have the same experience but my understanding based on the online letter that II sent me is that you have 30 days to press the reset button so to speak so they should be able to avoid potential tax drama as a result of the original transaction. I wish the OP all the best for a resolution.

I can't thank the contributors on this forum enough for the time they take to share their experiences lots of which I have used in all areas of my personal finance to great effect

[airbus330]

A salutary tale. I have received compensation this morning from Aviva for an erroneous transaction which caused me a small but un-necessary tax bill. This is the 2nd. time I have had to complain about administrative errors with Aviva and I was compensated the last time too. I hope you lodge a complaint and get some redress. I have noticed a steady decline in the level of knowledge of the staff at various financial institutions I deal with over the past few years.

Now I'm going OT but what level of compensation should one look for in this kind of situation - I am about to engage with a (different) provider about a series of errors (every year or two) of small sums then a larger £600 error to my detriment last month.

gpadsa

The first compo was £200 plus an adjustment. The 2nd. was £100 for a tax bill of £33. I didn't, in fact, make a complaint in the 2nd. case, the advisor logged it as one automatically and then the relevant department got in touch in due course with an apology and an offer. In the 2nd. case they even stated that the person who made the error was re-trained and working under supervision. TBH, I'd rather they just did a relatively simple job with competence, but that is a bit optimistic these days! Dealing with Aviva is to step back far in time.

[ursaminortaur]

In this world of new pension freedoms, I'd have thought that it would be as idiot proof as possible.

I took £1,000 out first because having looked at various Lemon Fool messages, I thought that you had to get a tax code to stop them taking the tax off my supposedly tax free lump, then me having to claim it back.

I didn't understand what UFPLS was, but I spoke to a II SIPP adviser about taking my tax free allowance who said that what I had done was fine which I presumed to mean that I could take out £50,000 tax free, so that was my next move.

I went through the process of taking the money out of II myself - i didn't at that stage get talked through the transfer by an II adviser. Don't think that's how it works.

I have formally complained and asked for transcripts of my two telephone conversations with II advisers.

I accept I was an idiot for not making absolutely sure that it was tax free - but I took the word of the adviser that if I had done the first £1,000 transfer correctly, the second would be fine.

I now realise the reason the first £1,000 wasn't taxed is that I was within my tax free income limit.

I'm happy to include all necessary information because I think I can't be the only idiot in town and the system needs to be improved so that others don't do the same thing.

I suppose what I would have liked to have happened is for II to have made it clearer during the process of withdrawing the money whether I was being taxed or not.

It's still not obvious to me what in my account represents the crystallised and uncrystallised pots.

UFPLS will in effect crystallise the amount you ask for and then immediately pay it out leaving the remainder as it was - so you wouldn't expect to see anything.

When you crystallise part of a pot using flexible access some providers will split your pot into two parts - so you would see a separate crystallised pot and another separate uncrystallised pot - this does mean though that different investments will be in different pots and you may have to choose which investments are in which pot. Other providers such as A J Bell though just show one pot and handle the split behind the scenes. This is easier in that you don't have to choose which pot (crystallised or uncrystallised) investments are placed in. A J Bell then provide another menu option which tells you what percentage of the one pot you see has been crystallised. Although I haven't used an ii Sipp I believe they handle crystallisations in a similar way to A J Bell so that you would just see the pot with the split being handled behind the scenes.