From April 2017, clients will be able to utilise their pension pots to pay for retirement planning advice to the value of £500 in any one tax year.
Initially announced in the Autumn Statement 2016, the Treasury has now confirmed the rules surrounding maximising this allowance:
- It can be used three times, but only once in a tax year
- It can be used by anyone, at any stage of their life
- It can contribute towards the cost of regulated financial advice including 'robo advice'
- It can only be used by clients who hold defined contribution and hybrid pensions with a defined contribution element
- It cannot be used to pay for advice in relation to defined benefit or final salary schemes.
In addition, the Treasury has confirmed it is introducing an income tax exemption of £500 for employers who provide pensions advice for their employees. This can be combined with the employee's own £500 advice allowance to cover £1,000 of pension advice costs.
Although this sounds like a good deal, it does call into question whether £500 is enough to cover the cost of advice in this area.
The treasury themselves have analysed that traditional regulated financial advice costs an average of £150 per hour and can average 9 hours on each case.
In addition, the ability to access the Pension Advice Allowance is dependent on the existing pension provider and scheme, as not all providers will facilitate accessing the pension pot in order to pay for advice. In particular, the pension policies issued before the Retail Distribution Review (RDR) would typically be unable to meet these requirements.
It also does not apply to those holding a defined benefit or final salary scheme, and therefore the recent upswing in clients looking to analyse the transfer value of these pensions will be unaffected.
It is therefore not a quick fix to the advice gap however it will allow pension advice to become more accessible. It may be viewed as a sweetener for clients to seek advice who would otherwise not have been prepared to cover the costs.