From 6th April 2017, the Pension Advice Allowance (PAA) allows the withdrawal of up to £1,500 tax free from a pension fund, in three tranches of £500 per tax year, to enable individuals to pay for the cost of advice relating to their retirement. It will be restricted to those pensions with a defined contribution element (funds) and will exclude final salary schemes.
This may be used in conjunction with the tax exemption for employer arranged pensions advice which means employees may receive up to £1,000 tax free to use for advice in a tax year. There is also no age restriction with the allowance being able to utilised at various stages of life.
Whilst the PAA will be very useful for those without the means necessarily to pay for advice ‘up-front’ and hopefully make financial advice more accessible, the Treasury’s own analysis has indicated that the allowance will still fall short of the true cost of receiving retirement advice. They have also said that it is up to pension providers to market the availability of the allowance but so far few companies have taken up the mantle with the response from the public minimal.
The profile of the PAA is certainly very low. Will those with lack of finances to be able to pay for advice fees be willing to do so by reducing their pension funds which in some cases may be relatively modest in size? Or will they simply not bother? We will see.