HM Treasury is consulting on the government’s preferred design for an allowance enabling people to take £500, tax-free, from their defined contribution 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 ultimately taken. The allowance would be available before the age of 55. The government announced at Budget 2016 its intention to consult on introducing this allowance, following a recommendation by the financial advice market review.
The government’s preferred approach is to build on the existing adviser charging system. It proposes creating a new authorised payment for pensions, which would be for the facilitation of adviser charges up to £500, for the purpose of financial advice on retirement. To be an authorised payment, the funds would need to be paid direct from the scheme to the financial adviser. This means that using adviser charging for advice on multiple pension pots and other assets to be put towards a retirement income would no longer be an unauthorised payment.
Savers may be permitted to use the allowance more than once, which would allow people to take advice at different stages of retirement. To prevent opportunities for fraud, it may be necessary to limit the total number of uses (e.g. a maximum of three uses per person).
The consultation also invites comments on a number of product or scheme-specific difficulties.
The government announced at Budget 2016 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. It is possible that the tax exemption for employer arranged advice could be used in conjunction with the pensions advice allowance, to give people access to up to £1,000 of tax-advantaged financial advice. Both measures are expected to come into force from April 2017.
HM Treasury is consulting on the government’s preferred design for an allowance enabling people to take £500, tax-free, from their defined contribution 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 ultimately taken. The allowance would be available before the age of 55. The government announced at Budget 2016 its intention to consult on introducing this allowance, following a recommendation by the financial advice market review.
The government’s preferred approach is to build on the existing adviser charging system. It proposes creating a new authorised payment for pensions, which would be for the facilitation of adviser charges up to £500, for the purpose of financial advice on retirement. To be an authorised payment, the funds would need to be paid direct from the scheme to the financial adviser. This means that using adviser charging for advice on multiple pension pots and other assets to be put towards a retirement income would no longer be an unauthorised payment.
Savers may be permitted to use the allowance more than once, which would allow people to take advice at different stages of retirement. To prevent opportunities for fraud, it may be necessary to limit the total number of uses (e.g. a maximum of three uses per person).
The consultation also invites comments on a number of product or scheme-specific difficulties.
The government announced at Budget 2016 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. It is possible that the tax exemption for employer arranged advice could be used in conjunction with the pensions advice allowance, to give people access to up to £1,000 of tax-advantaged financial advice. Both measures are expected to come into force from April 2017.
