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£600 ‘Tax-Break’ For Those Seeking Advice on Pension Option

Higher-rate taxpayers set to benefit from new allowance that enables them to get advice on their retirement options

Emma Simon 8 February, 2017 | 2:17PM

A new “Personal Advice Allowance” will allow investors to withdraw £1,500 – tax-free – from their pension funds to pay for advice about their retirement options.

This allowance is in addition to the 25% tax-free lump sum that all pension savers can withdraw from the age of 55. For higher-rate taxpayers – who would normally pay 40% on additional pension withdrawals this equates to a £600 saving.

HM Revenue & Customs has confirmed that this new allowance will be available from the April 6 2017 – and, more surprisingly, can be used by pension savers of any age. Under current rules people are normally only able to access their pension savings from the age of 55.

However, although the maximum allowance is £1,500 – savers won’t be able to access this full amount in one go. Instead HMRC said that the maximum that can be taken in any one tax-year is £500. This amount can be taken up to three times.

Advice on Property and Pension Wealth

This money must be paid directly from the pension plan to the regulated adviser. But it can also cover advice about housing equity as well as pension savings. This allowance is only available to those with money purchase, or defined contribution schemes. It won’t be available to those with final salary scheme.

Pension savers have been assured though that using this allowance won’t restrict the amount they can save into a pension in future. Under the pension freedom rules, those who cash in their pensions from the age of 55 will only be able to get tax relief on pension contributions of £4,000 a year from April (the current limit is £10,000). But these restrictions don’t apply to those taking just their tax-free lump sum, using this new allowance or buying an annuity.

Encouraging More People To Take Financial Advice

Simon Kirby, economic secretary to the Treasury said this move is aimed at getting more people to take advice on their pension pot. “Pension 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,” he said.

Nici Audhlam-Gardiner, the managing director of Saga Investment Services added: “It is great that the Government has recognised the value of advice and the important o advice that takes into account housing as well as financial wealth.

“The challenge is t ensure that this doesn’t just become a subsidy for those who would have taken advice anyway. It must be a genuine prompt for many ordinary savers to see that financial advice at retirement is as appropriate as seeing a solicitor when you are moving house. Advice is key for people to make the most of their money to make it last throughout their retirement.”

This has drawn criticism from some financial advisers, who say that this will only pay for more limited advice options. There are also concerns that some pension providers wouldn’t be able to accommodate these direct payments to advisers, limiting the number of people who can access this allowance.

Alistair Creevy, managing director of Independent Advisers Scotland said that spreading this allowance over three or more years may limit the planning that can be done.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk