The Treasury has confirmed that from April this year retirement savers will be able to withdraw funds from their pension pots tax-free to pay for advice on retirement planning. This is because pension flexibilities introduced in April 2015 have given many savers a wider range of retirement options to consider.
Savers will be able to withdraw a sum of up to £500 from registered defined-contribution pensions and hybrid pensions with a money purchase or cash balance element. They will be able to do this three times - although not more than once per tax year. The £500 will not be taxed, and using your pensions advice allowance will not affect your ability to take up to 25 per cent of the remaining funds in your pension as a tax-free lump sum when you eventually take benefits.
The £1,500 advice allowance will be available to savers of all ages, and can be taken before or during retirement. It can also be used alongside the tax exemption for employer-arranged pensions advice.
The payment of the allowance must be made direct from the pension scheme to an adviser, and is only available for regulated financial advice.
The advice does not have to be just on pensions, but can relate to retirement more widely. The government says the sorts of scenarios the advice could cover will include:
■ How to draw a retirement income from all of your pension pots, and from a stocks and shares Individual Savings Account (Isa).
■ Whether income from a pension will be sufficient for your retirement or whether you might want to supplement this by releasing equity from your house.
■ Whether the asset allocation of a drawdown product is appropriate given your exposure to certain asset classes within other financial products you own.
■ How to use assets to fund care in old age.
It cannot cover areas such as inheritance tax or advice on an investment that will not be used for retirement income.
The Financial Advice Market Review, which has conducted a consultation on introducing the pensions advice allowance, says high-quality financial advice can have a significant impact on retirement incomes, and people often increase their savings rate as a result of taking advice. For example, adviser search website Unbiased found that those who sought retirement advice increased their retirement savings by an average of £98 a month.
However, Tom Selby, senior analyst at AJ Bell, adds: "The introduction of the advice allowance is an improvement on the existing system, but we need to be realistic about what this will achieve. According to the Treasury's own analysis, face-to-face advice costs £150 per hour on average and can take up to nine hours for pensions - meaning even with the allowance you still might have to make up a shortfall of £850."
You can see more details on the pensions advice allowance here.
