Pension investors will be able to withdraw up to £1,500 from their pension pots tax-free to pay for financial advice, the Government has confirmed today.
The new Pension Advice Allowance, first announced in the Autumn Statement 2016, will enable people to withdraw £500 up to three occasions from their pension pots tax-free to put towards the cost of pensions and retirement advice from April 2017.
Following an 8 week consultation, economic secretary to the Treasury, Simon Kirby has today confirmed that the £500 allowance can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement and will be available at any age, allowing people of all ages to engage with retirement planning.
The Treasury says the money can be redeemed against the cost of regulated financial advice, including robo advice, as well as traditional face-to-face advice. It will be available to holders of DC pensions and hybrid pensions with a defined contribution element, but will not be available for DB members.
Pension providers will be able to offer the allowance to their members from April 2017.
According to Unbiased, UK savers with a pension pot of £100,000 save an average of £98 more every month and receive an additional income of £3,654 every year of their retirement if they take financial advice.
Kirby says: “Pensions and savings decisions are some of the most important a person will make during their lifetime. This allowance will help people get the vital financial help they need to plan for their retirement.”
AJ Bell senior analyst Tom Selby says: “The introduction of the advice allowance is an improvement on the existing system, but we need to be realistic about what this will achieve. According to the Treasury’s own analysis, face-to-face advice costs £150 per hour on average, and can take up to nine hours for pensions – meaning even with the allowance you still might have to make up a shortfall of £850.
“The sector is clearly evolving and innovative ‘robo-advice’ models may develop to help people assess their retirement options. But we are some way from that point at the moment and the Government should not see the advice allowance as some sort of panacea that will magically solve the UK’s advice gap.”
The government has published a response to the consultation on introducing a Pensions Advice Allowance and HMRC will now conduct a 3 week technical consultation on the draft regulations.