How to claim a £600 ad­vice give­away

The Daily Telegraph - Your Money - - OPINION -

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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