The £600 pension advice giveaway - and how to claim it
The Government has handed higher-rate taxpayers a £600 tax-perk in the form of free financial advice.
The new Pension Advice Allowance, first talked about in the Autumn Statement last year, will be launched in April this year. It means that pension savers can take up to £1,500 out of their pension pot tax-free in order to pay for advice.
The move means that higher-rate tax payers, who would normally pay 40pc on any withdrawals from their pensions, will effectively save £600.
In practice the rules are more complex.
Pension savers can take out £500 at a time, up to three times, in order to pay for advice. It is open to those of all ages, not just people nearing retirement.
Simon Kirby, economic secretary to the Treasury, said the move is aimed at getting more people to take advice on their pension pot.
"Pensions and savings decisions are some of the most important a person will make during their lifetime. This allowance will help people get the vital financial help they need to plan for their retirement," he said.
How can you take the cash?
Pension savers can take up to £500 each time, on a maximum of three occasions. They are only allowed one withdrawal under the Pension Advice Allowance in each tax year.
Who can take the money?
The withdrawal is open to anyone, at any age, so it is not just for those nearing retirement.
However, it is not open to those with final salary or"defined benefit" schemes. It is only open to those with"defined contribution" employee pensions, or hybrid pensions with a defined contribution part to it.
How much does it save me?
Withdrawals from pensions are normally charged at the individual's income tax rate, before the Pension Advice Allowance is launched. If a higher rate taxpayer were to withdraw the full £500 on three separate occasions, without using the new allowance, they would face a tax penalty of £600.
A 20pc tax payer would save a tax bill of £300 on the full £1,500 withdrawal, under the new scheme.
However, someone with an income of less than the tax-free allowance of £11,000 would not pay any tax on the withdrawal, so long as the withdrawal did not take them over that limit.
What can I use the money for?
The money can used for retirement planning, but individuals can use it to pay for more traditional face-to-face advice or online"robo-advice", which uses technology and online systems to help individuals organise their finances.
The advice being taken must be from a regulated source, the Treasury said. The payment will be made directly from the pension provider to the advice service, it will not be paid out to individuals.
The Government's definition of"retirement advice" is quite broad.
It said the scope is "intended to include a consideration of other factors, including other assets, which are relevant to an individual’s retirement planning. The scope of the allowance reflects the fact that it is not possible to make decisions about pensions in isolation from other aspects of an individual’s finances."
Examples include getting advice on drawing an income from a pension and stocks and shares Isas, using equity release, or how to fund old age care.
How much advice does £1,500 buy me?
The money is not likely to buy enough advice to cover complicated pension issues. According to AJ Bell, the fund shop, the Treasury’s own analysis shows that face-to-face advice costs £150 per hour on average
"It can take up to nine hours for pensions advice – meaning even with the allowance you still might have to make up a shortfall of £850," said Tom Selby, senior analyst at AJ Bell.
However,"robo-advice" offerings will likely be cheaper, although they are in the earlier stages of development.
This article was written by Laura Suter from The Daily Telegraph and was legally licensed through the NewsCred publisher network.