Having acknowledged the importance of pension savers gaining access to the best possible advice, the Treasury has announced a new initiative to help bring down associated costs. The new measure will allow savers to withdraw a tax-free sum of up to £500 from their pension savings, in order to be used to gain independent financial advice. The money can be withdrawn before and will not have any impact on the rest of the tax breaks and benefits their pension pot is entitled to.
The Treasury and City watchdog the Financial Conduct Authority’s (FCA) joint financial advice market review (FAMR) made the initial recommendation, which led to a proposal being drafted and outlined in the March Budget statement.
In addition to the tax-free £500 for independent financial advice, a further £500 can be withdrawn without tax for financial advice arranged by the saver’s employer. In total, this would mean that each saver could use up to £1,000 of their pension pot to gain access to financial advice, without having to pay tax on it.
The government recently acknowledged the growing problem of retirees approaching their retirement with no real understanding of the pension options available to them. In total, research found that just 22% of those approaching retirement age knew exactly how much their pension pot was worth. More worryingly, no more than 14% of savers said that they would be confident to make the right decisions for their financial futures on their own, without seeking and obtaining independent financial advice.
The new initiative will come into force as of April next year, the proposals published yesterday confirm.
Speaking on behalf of the Treasury, economic secretary Simon Kirby reemphasised the importance of understanding both the options available to you as a saver and how to plan for your financial future.
‘and savings decisions are some of the most important a person will make during their lifetime,’ he said.
‘It is therefore vital that people can access the financial help they need and feel confident choosing the support that works for them in their retirement.’
Clarifying the details of the new allowance further, the statement released by the Treasury stated that the tax-free £500 could be used either for in-person financial advice, or for web-based advice and solutions to be provided by registered IFAs. They also commented that £500 should be sufficient to gain high-quality advice from a leading provider in the IFA business.
As it stands, tax-free financial advice is available for pension savers, but only on the product from which the advice fee is taken. The new initiative opens up a wide variety of opportunities for savers to gain essential advice on all of their savings and future financial interests across the board.
‘The government’s proposed design for theadvice allowance… would allow adviser charging to be used for holistic retirement advice that considers all of an individual’s savings,’ the Treasury wrote.