Government publishes details of Pensions Advice Allowance

Government publishes details of Pensions Advice..

The Government has set out details of how it proposes the Pensions Advice Allowance will work.

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In August 2015 the Financial Conduct Authority (FCA) and HM Treasury set up the Financial Advice Market Review, tasked with finding ways to make the market for financial advice in the UK work better.  One of its recommendations was for HM Treasury to explore options to allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice. HM Treasury launched a consultation on this proposed Pensions Advice Allowance in August 2016 and has now announced the outcome.

The proposed features of the new Allowance are:

  • A limit of £500 per use;
  • No maximum or minimum age limit;
  • The allowance can be taken from crystallised or uncrystallised defined contribution (DC) funds (including the DC element of a hybrid scheme);
  • A maximum of three uses of the allowance in the member’s lifetime will be allowed (relying on the member’s own declaration), and no more than once per tax year;
  • It will be tax-free for the member;
  • It can be used only to pay for regulated financial advice about retirement planning (with payment made directly from the pension scheme to the financial adviser);
  • It will be subject to existing FCA charging rules and statutory restrictions on charging; and
  • It will be achieved by introducing a new authorised payment under the pensions tax rules – but it will not be a ‘benefit crystallisation event’ and does not count as part of the pension commencement lump sum (PCLS).

The Allowance can be used to pay for pensions or retirement advice.  Retirement advice need not be restricted to purely pensions matters but can include many other issues relevant to an individual’s retirement planning.

Interaction with the increased allowance for employer-funded advice

From 6 April 2017, individuals will have a £500 annual tax- and NIC-free allowance for employer-funded pensions advice (with the cost of any advice above that level subject to tax and NIC as a benefit in kind). It will be possible to combine that allowance with the Pensions Advice Allowance to enable individuals to access up to £1,000 of tax-advantaged financial advice. The use of one exemption does not prevent an individual from accessing the other.

Scheme members will not have an automatic right to access the Allowance.  It is likely that trust-based scheme rules will require amendment in order to make it available.

Next steps

Details of the Allowance will be set out in regulations (which are being circulated in draft for a brief period of consultation).  Detailed HMRC guidance will be published shortly after the Allowance comes into force on 6 April 2017.

 

For further information please contact :

Simon Mayho

Andrew Scrimshaw

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