Tax-free Pension Advice Allowance
13 February 2017
The new Pension Advice Allowance will enable people to withdraw £500 on up to three occasions from their pension pots tax-free to put towards the cost of pensions and retirement advice from April 2017.
Following an 8 week consultation, the government’s response confirms that the £500 Pension Advice Allowance:
- can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing pension or just prior to retirement
- will be available at any age, allowing people of all ages to engage with retirement planning
- can be redeemed against the cost of regulated financial advice, including ‘robo advice’ as well as traditional face-to-face advice
- will be available to holders of “defined contribution” pensions and hybrid pensions with a defined contribution element, not “defined benefit” or final salary type schemes.
- can be combined with the £500 employer-arranged tax-free pensions advice.
Comments on the drafts should be sent by email to firstname.lastname@example.org by 28 February 2017.
Interaction of the allowance with the tax exemption for employer arranged pensions advice
From 6 April 2017 the government is also introducing a new income tax exemption to cover the first £500 worth of pensions advice provided to an employee in a tax year. It will allow advice not only on pensions, but also on the general financial and tax issues relating to pensions. The changes replace existing provisions which limited the exemption solely to pensions advice and was capped at £150 per employee per tax year.
This tax exemption will be available for salary sacrifice arrangements between an employer and employee. Additionally, where an employer reimburses an employee for pension advice they have arranged, this will be covered by the exemption.
It will be possible to combine this tax exemption with the Pensions Advice Allowance to enable individuals to access up to £1000 of tax advantaged financial advice. The use of one exemption does not prevent an individual from accessing the other.