In late August 2016, the Government opened a consultation into new proposals that would allow consumers to withdraw up to £500, free of tax, from their pension savings in order to pay the fees demanded by their financial adviser.
At present, access to any of an individual’s pension savings is not permitted before age 55, and while the minimum age for taking advantage of the new allowance has not yet been set, reports suggest that the £500 allowance could be made available from age 45.
It is expected that the withdrawal facility will only be available to those with defined contribution (money purchase) pension plans, and not to members of defined benefit (final salary) schemes.
The number of withdrawals an individual can make may be capped at three, but again this is subject to consultation.
Any sums withdrawn would pass directly from the pension pot to the advisory firm, so in reality the consumer would never have access to the money.
This new ‘pensions advice allowance’ proposal is likely to come into force in April 2017. The consultation closes on October 25 2016.
The Government press release announcing the opening of the consultation says that amongst people approaching retirement, only 22% of know how much their pension savings are worth, and that only 14% are confident in planning for their retirement without receiving financial advice. However, many consumers remain unwilling or unable to pay for professional advice from a regulated adviser.
The proposal is one of the recommendations of the recent Financial Advice Market Review. The Review was jointly conducted by HM Treasury and by financial watchdog the Financial Conduct Authority, and aims to improve public access to financial services.
The Government is also proposing to increase the tax exemption for employer arranged pensions advice to £500, also from April 2017, meaning that consumers could potentially access £1,000 to pay for retirement planning advice.
Economic Secretary to the Treasury, Simon Kirby MP, said of the proposals:
“Pensions and savings decisions are some of the most important a person will make during their lifetime.
“It is therefore vital that people can access the financial help they need and feel confident choosing the support that works for them in their retirement.
“I look forward to the industry engaging with the pensions advice allowance consultation, and taking this opportunity to tell us how the allowance could best meet the needs of both consumers and firms.”
Some commentators have suggested that £500 would not be sufficient to cover the costs of a full pension review with an authorised adviser. The consultation paper acknowledges that financial advisers often charge £150 per hour, and that consumers may need to pay more than the permitted withdrawal of £500, with the extra amount coming from their own funds.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.