The Pension Advice Allowance scheme was first announced by Chancellor Phillip Hammond in his Autumn Statement last year. It will be available to any saver with a defined contribution pension or a hybrid pension that has a money purchase element.
The £1,500 can’t be withdrawn in its entirety, however. Instead, it will be made available as three lots of £500, which won’t be taxed regardless of income. You can’t withdraw the £500 allowance more than once in a tax year, but there are no set times for when this year needs to be; you can choose to use the allowance at whatever age you wish.
The scheme has been designed this way so that savers can access pension advice at different periods throughout their lifetime, as it’s likely they’ll require updated advice at various stages based on their ever-changing circumstances. Key stages include when they’re choosing their pension scheme and need to know what will give them the best saving options and when they’re just about to retire and need to make plans for long-term budgeting.
The £500 can be combined with the tax exemption for employer-arranged pensions advice (also £500), allowing savers to potentially access £1,000 worth of financial advice in a tax year.
The money can be used to pay for either a face-to-face consultation with an adviser or “robo-advice” given by through online sources using algorithms to provide guidance (after the customer has answered several online questions in regards to their income, spending, and openness to risk) with minimal human interaction.
The main hope is that the new Pension Advice Allowance Scheme will provide more people with the incentive to seek the necessary financial advice in regards to their pension, as the cost of such advice can sometimes discourage people.
Receiving expert pension advice is clearly very important in today’s financial climate, but unfortunately many people fail to seek the crucial advice they need in time, leaving their finances to suffer. The government has obviously recognised this, and that’s why the scheme has been introduced. Statistics from the Treasury show that only 22 per cent of people know how much is in their pension pot, while a mere 14 per cent said they would be comfortable planning their finances for retirement without the assistance of an adviser. The bottom line is that financial advice could help save you a lot more on your pension pot, giving you added peace of mind for your retirement years.
Comments from Simon Kirby, the Economic Secretary to the Treasury, reflect this: “Pensions and savings decisions are some of the most important a person can make during their lifetime. This allowance will help people get the vital financial help they need to plan for their retirement.”
For professional advice relating to any aspect of your state pension, including international pension planning and making a pension transfer to a QROPS, contact a Blacktower Financial adviser today.