The Government has announced fresh plans for the Pension Advice Allowance, a scheme designed to let retirement savers access £1,500 from their pension pot, tax-free, to pay for financial advice at various life stages. It's set to come into force in April this year, and it could be a great way to help you get the advice you need without having to find the extra funds. Will you be taking advantage?
The allowance, which was first announced in last year's Autumn Statement, will enable people to withdraw £500 from their pension pots on up to three separate occasions, specifically to put towards the cost of pensions and retirement advice. You'll only be able to access one £500 allowance in any tax year, with the scheme designed to help you access advice at different life stages, such as when first choosing a pension, or just prior to retirement when you need to consider your income options.
You can access these tax-free funds at any age and can use them to help cover the cost of any form of regulated financial advice – including "robo-advice" as well as face-to-face – provided you've got a defined contribution (DC) pension, or a hybrid pension with a DC element. Those with a defined benefit or final salary style scheme won't be able to access funds, but given that the vast majority of workplace pensions are DC arrangements, most retirement savers should be eligible.
"Pensions and savings decisions are some of the most important a person will make during their lifetime," said Economic Secretary to the Treasury, Simon Kirby. "This allowance will help people get the vital financial help they need to plan for their retirement."
The initial benefits of the allowance are clear. After all, worryingly few people are on the ball when it comes to their pension, with the Government citing research which shows that only 22% of people know the value of their pension pot when approaching retirement, and only 14% would be confident planning their retirement goals without financial advice.
Not only that, but there are clear financial benefits associated with seeking proper advice. According to Unbiased, UK savers with a pension pot of £100,000 will save an average of £98 more every month, and thereby receive an additional retirement income of £3,654 every year, if they take financial advice.
That kind of benefit isn't something that should be overlooked, and it highlights why everyone should be seeking professional advice. The new allowance will hopefully make that kind of advice far more accessible to more people, with the cost of advice – which according to the Treasury can cost an average of £150 per hour – understandably posing a barrier for many.
The announcement has been welcomed by many in the industry, including Steven Cameron, Pensions director at Aegon
, who commented: "We welcome the Pensions Advice Allowance as a further means through which individuals can pay for valuable advice on their pension planning. In today's pension world, individuals have complete freedom over how to draw their pension benefits, but choosing what's best can be daunting without access to professional advice."
David Stevens, director of Advice Strategy at LV=, agreed: "The Government is absolutely right to allow people to access money from their pension pot to pay for advice and it's positive this reform covers both traditional and 'robo-advice' to meet consumers' changing habits.
"We know that the upfront cost of advice can be a major barrier for consumers, and today's announcement should ensure that more people can get the help and support they need. Professional financial advice is vital for retirement planning to help people make the right decisions for them and ensure consumers get the most from their hard-earned savings."
Some are concerned that the allowance may not be enough to cover the full cost of pensions advice, but it's definitely a step in the right direction, and the fact that it has to be used solely for retirement advice – which can include advice on all related issues such as care funding and equity release, as well as pensions and annuities – should mean more people can approach later life with their finances in order.
However, in order to make full use of the Pension Advice Allowance, you'll first need a decent pension pot from which to withdraw those funds, as well as make sure you've got enough to last throughout retirement. That's why forward planning is key, and why you need to be saving as much as you can into a pension – workplace or otherwise – to be as prepared as possible for the future.
Read our pensions and retirement guides to get started, and if you're not yet enrolled on your workplace pension scheme, it's time to sign up (if your employer doesn't offer one yet, auto-enrolment means they soon will do). You may want to look into other savings vehicles too, such as a private pension or even an ISA, so you can be confident that you're as prepared as possible for your post-work years.
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