Consultation on introducing a Pensions Advice Allowance

05 September 2016

The Pensions Advice Allowance is due to come into force from April 2017, and will allow people nearing retirement to take up to £500 out of their defined contribution pension pot tax-free, to put towards 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 has launched a public consultation on the allowance which seeks views on specific details including the eligibility age and how best to promote awareness of the allowance.

The Pensions Advice Allowance was first announced in Budget 2016 after a recommendation from the Financial Advice Market Review (FAMR), which suggested that high quality financial advice can have a significant impact on retirement incomes if received early.

The government also announced in 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.

The consultation closes on 26 October 2016.