How to claim £600 in pen­sion ad­vice

PHILIP HUNT puts the Gov­ern­ment’s Pen­sion Ad­vice Al­lowance un­der the mi­cro­scope

EDP Norfolk - - Education - CON­TACT nor­[email protected]­ton­ yar­[email protected]­ton­ dere­[email protected]­ton­ Philip Hunt, Tax con­sul­tant at As­ton Shaw

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.


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.


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

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