How to claim £600 in pension advice
PHILIP HUNT puts the Government’s Pension Advice Allowance under the microscope
THIS APRIL, the new Pension Advice Allowance will be put into effect by the Government, enabling higher-rate taxpayers to receive £600 in the form of free financial advice.
The new Pension Advice Allowance was first mentioned in last year’s Autumn Statement. Ordinarily, higher-rate taxpayers would be required to pay 40% on any withdrawals they make from their pensions, but under this new initiative, pension savers will effectively save £600.
In short, Pension Advice Allowance means that pension savers can take up to £1,500 out of their pension, completely taxfree, in order to pay for advice. On the surface of it, the initiative seems pretty simple; descend below the surface, however, and you will quickly find that the rulings are considerably more complex than at first gleaned.
Pension savers can take out £500 at a time, up to a maximum of three times, to pay for advice, though only one withdrawal is allowed per tax year. It is important to keep in mind that the withdrawal is open to anyone, of any age, not just those nearing retirement. However, it is only open to those with defined contribution employee pensions; if you’re part of a final salary or defined benefit scheme, you will not be eligible.
HOW MUCH WILL I SAVE?
The all-important question. Withdrawals are usually charged at the saver’s income tax rate. So, if a higher-rate taxpayer were to withdraw the full £500 on three separate occasions, under normal circumstances they would pay it out of net of tax income. The Pension Advice Allowance simply removes this disadvantage, so you essentially gain an extra £600 to spend on financial advice.
WHAT CAN THE MONEY BE USED FOR?
The Government claims that the money may only be used for ‘retirement advice’, but the Government’s definition of this is very broad. The money can be used for retirement planning, or individuals can use it for traditional face-to-face advice.
Providing the advice being taken is from a regulated source, the money will be paid out. In case you’re thinking you can claim this money and use it for a luxury holiday, the payment will be made directly from the pension provider to the advice service, meaning you can dispel any thoughts of getting your hands on any physical cash under this scheme.
Planning for retirement is something most of us neglect to consider; the Government created the Pension Advice Allowance with the intention of encouraging people to start planning for their retirement and in my opinion, it’s a step in the right direction.
In truth, even if you withdraw the full £1,500, this isn’t really enough to cover complicated pensions issues. However, it should be enough to cover the basics, and will likely provide you with the advice you need to make the right financial decisions, those that will ultimately benefit you.
In case you’re thinking you can claim this money and use it for a luxury holiday, the payment will be made directly to the advice service