From April 2017, the new Pension Advice Allowance will allow individuals to withdraw £1,500 tax-fee from their pensions, to help them pay for the cost of regulated financial advice for their retirement.
It will enable individuals to withdraw £500 from their pensions, at any age and up to three times, but only once in a tax year. The Pension Advice Allowance will be available to defined contribution (DC) pension savers as well as ‘hybrid’ pension savers with a DC or cash balance element.
This is an increase from the initial one-off £500 tax free allowance announced in the 2016 Autumn Statement.
The Pension Advice Allowance will be able to be used alongside the tax exemption for employer arranged pensions advice, which means an individual could get up to £1,000 tax free to use for advice in a year.
Jonathan Watts-Lay, director, WEALTH at work, said: “Anything that encourages employees to take financial advice when making such important decisions about their retirement has to be a good thing. In fact, our recent Pension Changes Survey results 2017 show that only almost half (48%) of employers believe that their employees are not aware of the various retirement income options available to them at-retirement – the need for financial advice couldn’t be clearer.
“However, many employees don’t realise that it is possible to receive financial advice without having to pay for it upfront, therefore keeping valuable savings in their pension to grow further and then only paying if they decide to act on what is recommended.
“Employers and trustees are already realising they can save employees money by using retirement experts such as WEALTH at work to offer advice to their employees, on a ‘try-before-you-buy’ basis. This means the employee receives advice with a full written report but only pays if they accept the recommendation in the report; this could be to cover, for example, a drawdown plan for retirement or to consolidate legacy pensions into one place.
“I really can’t see a reason why employers wouldn’t want to offer this – it’s a ‘win-win’ situation for all and could even save employers from the burden and cost of administering the pension withdrawals to pay for the pension advice.”