31st August 2016
Consumers are set to be able to access £500 of their pension early to pay for full regulated financial advice under plans announced by the Treasury.
This pension advice allowance would allow people to take £500 tax free from their defined contribution pension i.e. not from a defined benefit pension to redeem against the cost of financial advice. The tax-free amount would be in addition to the tax free lump sum available when benefits are taken. The allowance would be available before the age of 55.
The change is out to consultation now. The government announced at the Budget that it would increase the tax exemption for employer arranged pensions advice from £150 to £500, and remove a cliff edge that meant that if an employer spent more than £150 on advice, the whole amount became taxable.
The government says that combined with the Pensions Advice Allowance people can now access up to £1,000 of tax advantaged financial advice. Both measures are expected to come into force from April 2017.
Hargreaves Lansdown head of retirement policy Tom McPhail says: “This is good news for consumers, extending the ways in which they can access professional help as they approach retirement. There are various risks which will need to be guarded against, such as fraudsters targeting this new facility by pretending to be financial advisers, or investors splitting their pension into multiple small pots to strip all their money out in £500 tax free chunks with the help of an adviser.
“There may also be complications with some robo-advice models, which charge relatively little for the advice but substantially more for the subsequent administration services.”
“The government has also flagged the age at which this facility should be available as an issue for consultation. This is important because the vast majority of investors only consider their retirement options within the last 2 years before they draw on their pension pots; for many it only happens a few months out. By permitting access earlier, for example from age 55, the government may succeed in driving a behavioural change towards earlier engagement with retirement options.”