Savers of any age who are planning for their retirement will now be able to withdraw up to £1,500 from their pension pots, tax-free, to pay for financial advice, under plans unveiled by the UK Government today.
The new Pension Advice Allowance, first announced, as reported, in 2016’s Autumn Statement, will enable people to withdraw £500 on up to three occasions from their pension pots tax-free to put towards the cost of pensions and retirement advice.
The allowance comes into force from April 2017 onwards, HM Revenue & Customs said in a statement announcing the launch of the scheme today.
The concept of enabling taxpayers to use un-taxed income to pay for financial advice was first mooted last year and following an eight-week consultation, the economic secretary to the Treasury, Simon Kirby, today confirmed the introduction of the allowance.
The £500 allowance can be used a total of three times, but only once in a given tax year, allowing people to access retirement advice at different stages of their lives – for example, when first choosing their pension, or just prior to retirement.
DC not DB
The allowance will be available at any age, allowing people of all ages to engage with retirement planning and can be redeemed against the cost of regulated financial advice, according to the information published today. This will include so-called robo-advice as well as traditional face-to-face advice.
However, the allowance will only be available to holders of defined contribution pensions and hybrid pensions with a defined contribution element, not those on defined benefit or final salary type schemes.
Pension providers will be able to offer the allowance to their members from April 2017, esearch has found that when approaching retirement only 22% of people know the value of their pension pot and only 14% of people would be confident planning their retirement goals without financial advice.
Financial advice boost
According to research carried out by Unbiased, a UK advice website for consumers, UK savers who obtained financial advice and who went on to assemble a pension pot of at least £100,000 saved an average of £98 more every month than those who didn’t take advice, and in retirement, receive an additional income of £3,654 every year, again compared with those who were un-advised.
“Pensions and savings decisions are some of the most important a person will make during their lifetime,” said Kirby. “This allowance will help people get the vital financial help they need to plan for their retirement.”
The government has published a response to the consultation on introducing a Pensions Advice Allowance, and HMRC now plans to conduct a three-week technical consultation on the draft regulations.