Opinion  

Why the tax-free advice allowance is rubbish

Emma Ann Hughes

Emma Ann Hughes

When an email pings into an inbox offering 10 per cent off most people are likely to open it. Everybody loves a bargain.

Ever felt your heart sink when you open the email offering you 10 per cent off and discover it is for a full price purchase of a luxury car or clothes from a designer store?

A similar sensation washed over me when I read the fine print of the government’s announcement last week that £1,500 could be withdraw tax-free from pension pot to pay for financial advice from April onwards.

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Savers will be allowed to withdraw £500 from their pension three times in their life. 

Economic secretary to HM Treasury Simon Kirby said savers would only be able to make one withdrawal, of up to £500, in any given tax year. 

So, while £1,500 sounded fantastic the reality for the average man in the street is this latest government offer is more akin to being offered 10 per cent off an expensive item you feel you couldn’t afford.

Call me tight-fisted but my first thought when I receive such email offers is that 10 per cent off a whacking giant price tag is still expensive.

So, as much as I may love the thought of driving a Jaguar or prancing about in Versace designer dresses I instead stick with what I feel comfortable with and know I can comfortably afford.

That is what I fear will be the reaction to most people when they truly get to grips with the government’s £1,500 tax-free pension advice allowance.

Aside from the fact most pre-Retail Distribution Review pension products will be unable to allow savers to access the government’s £1,500 tax-free pension advice allowance come April, the amount being offered isn’t enough to make advice “cheap.”

According to HM Treasury’s own analysis, face-to-face advice costs £150 per hour on average and can take up to nine hours for pensions.

This means even with the new tax-free pensions advice allowance the average saver still might have to make up a shortfall of £850 in order to get your help and make sure they make the most of their cash.

As Tom Selby, senior analyst at AJ Bell, says: “The sector is clearly evolving and innovative ‘robo-advice’ models may develop to help people assess their retirement options. 

“But we are some way from that point at the moment and the government should not see the advice allowance as some sort of panacea that will magically solve the UK’s advice gap.”

I fear the government will claim this tax-free advice allowance will make advice accessible to all and therefore think “job done” in terms of assisting the millions who will struggle to make sense of what they should do with their savings post former chancellor George Osborne bursting open Pandora’s Box with his pension freedoms.