Pensions advice allowance consultation response published

The government announced at Budget 2016 that, as recommended by the Financial Advice Market Review (FAMR), it would consult on introducing a Pensions Advice Allowance. HM Treasury has now published the response of the consultation into this allowance.

The concept was that the allowance would enable people to take £500 tax free from their defined contribution pension to redeem against the cost of financial advice. The purpose of the allowance was to encourage people to take advice by allowing the advice to be more affordable because it would be paid for using tax relieved funds through their pension and not out of income.

The main outcomes of the consultation are as follows:

• the allowance will be limited to up to £500 per use;
• the allowance will be available at any age;
• individuals will be permitted three uses of the allowance in their lifetime, no more than once per tax year;
• the £500 will not be taxed on withdrawal from the pension pot, regardless of the individual’s income;
• the allowance can be withdrawn from defined contribution pensions and hybrid pensions with a money purchase or cash balance element;
• the payment of the allowance must be made direct from the pension scheme to the adviser;
• the allowance will only be available for regulated financial advice;
• the allowance can be used alongside the tax exemption for employer arranged pensions advice;
• the allowance will be publicised through nudges designed by the Financial Advice Working Group and signposted by Pension Wise; and
• the allowance will come into force from April 2017

HMRC will publish full guidance on the allowance shortly after it comes into force.

This has to be a positive move alongside all the pension freedoms, encouraging more people to take advice about their retirement. It is great news that it isn’t just a one off payment and that it will be allowed before age 55 to help with planning for retirement rather than just dealing with the issue when it arises.