It is very welcome that the allowance is restricted to genuine advice and not conflated with guidance as happened in the 2014 Budget. This reinforces two of the key values of financial advice – it offers a personalised recommendation of the way forward and access to redress for the rare occasions when advice proves to be flawed.
The government proposes that the Pensions Advice Allowance should be made available before the age of 55 to enable individuals to plan for retirement well in advance. This consultation invites comments on the exact age from which the allowance should be available, so we will know that soon after this consultation closes on 31 October. The importance of early pension contributions suggests the allowance could be available up to 15 years before retirement, perhaps even earlier.
In addition, there is some thinking on allowing consumers to tap into the allowance several times – perhaps up to a maximum of three times per person – at to-be-identified “distinct stages of retirement at which most people could benefit from repeat advice”.
Restrictions are likely to apply to this tax break. It looks likely only defined contribution (DC) pension scheme holders will be eligible. Furthermore, providers participating will need to facilitate adviser charging. So if providers cannot enable adviser payment through reduction of the value of the client’s funds by the amount of the adviser charge, and then transferring these funds directly to their client’s adviser, they may not be able to participate.
It also looks like pensions offering guarantees will not be admitted. Some of the annuity guarantees date from an era of very different interest rates, and can often double the apparent value of the pension pot.
Defined Benefit (DB) pensions are also unlikely to be included, which will be a relief to trustees and employers already burdened by complex benefit structures. However, today, most people with a DB pension will also have a DC pension pot somewhere, so they will be able to take the Pension Advice Allowance from that.
Therefore, assuming you have an employer or personal DC pension, you could well be eligible for £500 of tax-free for advice up to three times in the run up to retirement. In addition, those in DC-based employer schemes should attract a further £500 tax free cash to put towards advice. The implication is that this tax exemption on employer-arranged pensions advice is hard-wired into Pensions Advice Allowance, which would indicate that it could also be claimed up to three times in the run up to retirement.
