I took my 25% tax-free pension lump sum. Can I put it back?

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Q. I took my 25 per cent tax-free lump sum from my pension a few days before the budget, amid the speculation that the rules might change. It wasn’t ideal timing and I would rather have left it in there but wanted to be on the safe side in case it was abolished or reduced. Now that neither have materialised I am regretting the decision. A relative suggested there was a cooling-off period that would allow me to return the funds to my pension and reverse the process — is this true and how should I go about it?Mark, London
The speculation about the future of tax-free pension cash before the budget was hugely destabilising for savers and caused a spike in the number of people accessing their retirement pot.
AJ Bell has been urging the government to commit to a pensions tax lock, which would guarantee that neither tax relief nor tax-free cash entitlements would be altered, at least for the rest of this parliament.
For people in your position it might be possible to reverse the decision to take your tax-free cash — although you’ll need to get your skates on as, in most cases, the time limit is 30 days.
Here’s how it works. When you apply for certain financial products, rules set out by the regulator, the Financial Conduct Authority (FCA), mean that you must be given the right to cancel. This includes where someone accesses a personal pension for the first time. This point is crucial — if you had already accessed your pension then the pension firm may not allow you to reverse the decision.
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Provided this is the first time and your pension company is regulated by the FCA, you should be able to exercise your cancellation rights within 30 calendar days. The clock will usually start ticking from the point you receive notice of your rights, or the date you get the payment.
Your cancellation rights should have been confirmed when you processed your request to access your tax-free cash, either in writing or by email. If you can’t find them, get in touch with the firm as soon as possible to find out where you stand.
It’s also worth checking the terms and conditions of your pension or speaking to the firm to make sure this is the case, as different schemes may have different rules.
The precise process will also vary, but if the firm allows you to cancel and you want to proceed, you will need to return the tax-free cash that was paid out. Clearly if you have already spent some or all of it that might be challenging.
Once your tax-free cash has been returned to your pension (assuming this was possible under the terms of your scheme), it will be treated as if you’d never accessed it. Your lump sum allowance — the maximum amount of tax-free cash you can take over your lifetime — will also be restored.
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One thing to note is that there could be additional fees, such as bank or dealing charges, to pay when you go through this process. You might also find markets have moved against you in the interim, but if you really want to cancel then you might feel that’s a small price to pay.
Anyone who wants to pay tax-free cash back into their pension but can’t use cancellation rights should tread carefully as they might fall foul of the HM Revenue & Customs “pension recycling” rules, which limit the amount of tax-free money taken from one pension that can be reinvested in another pension. If you do breach these rules, you risk being hit with a tax charge of up to 55 per cent.
Tom Selby is the director of public policy at AJ Bell and has campaigned for retirement reforms such as banning pensions cold calling and increasing pension allowances