How to claim a £600 advice giveaway
A new government scheme means savers can take £1,500 from their pension, says Laura Suter
The Government has handed higher-rate taxpayers a £600 tax-perk in the form of free financial advice. The new Pension Advice Allowance will be launched in April.
It means that pension savers can take up to £1,500 out of their pension pot tax-free in order to pay for advice.
The move means that higher-rate tax payers, who would normally pay 40pc on any withdrawals from their pensions, will effectively save £600.
In practice, the rules are more complex. Pension savers can take out £500 at a time, up to three times, in order to pay for advice. They are only allowed one withdrawal each tax year. It is open to those of all ages, not just people nearing retirement.
Simon Kirby, economic secretary to the Treasury, said the move was aimed at getting more people to take advice on their pension pot.
The withdrawal is not open to those with final salary or “defined benefit” schemes.
It is only open to those with “defined contribution” employee pensions, or hybrid pensions with a defined contribution part to them. Withdrawals from pensions are normally charged at the individual’s income tax rate.
If a higher-rate taxpayer were to withdraw the full £500 on three separate occasions, without using the new allowance, they would face a tax penalty of £600.
A 20pc tax payer would save a tax bill of £300 on the full £1,500 withdrawal, under the new scheme.
However, someone with an income of less than the tax-free allowance of £11,000 would not pay any tax on the withdrawal, so long as the withdrawal did not take them over that limit.
The money can be used for retirement planning, but individuals can use it to pay for more traditional face-to-face advice or online “roboadvice”, which uses technology and online systems to help individuals organise their finances.
The advice being taken must be from a regulated source, the Treasury said.
The payment will be made directly from the pension provider to the advice service – it will not be paid out to individuals.
The Government’s definition of “retirement advice” is quite broad.
Examples include getting advice on drawing an income from a pension and stocks and shares Isas, using equity release or how to fund old-age care.
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