Savers will be able to take up to £500 out of their pensions tax-free to put towards the cost of financial advice from April 2017, economic secretary to the Treasury Simon Kirby has said.
31 AUGUST 2016 | CINTIA CHEONG
The UK government first announced the proposal in the last Budget statement in March after a recommendation from the Financial Advice Market Review (FAMR).
Published jointly by the Financial Conduct Authority (FCA), the FAMR suggested consumers should be allowed to take out a small part of their pensions to redeem against the cost of advice.
Kirby said: "Pensions and savings decisions are some of the most important a person will make during their lifetime.
"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."
According to a government's consultation, launched yesterday, the allowance should be limited to £500 per use. It is also seeking comments on whether to allow multiple uses to let people obtain advice at different points of retirement.
The money should be available before the age of 55 in order to enable individuals to plan in advance, it added, therefore the consultation invites comments on the exact age from which this would be available.
Aegon's pensions director Steven Cameron backs the idea that the money should be accessible before the minimum retirement age and be used multiple times.
"Individuals often benefit from seeking advice at various stages ahead of and into retirement, so they should be allowed to use a pensions advice allowance more than once," he said.
The Treasury also proposes the amount to be redeemed against all fully regulated services, including automated models.
The allowance is intended for advice only, meaning guidance would be excluded for its use.
The government said: "If the pensions advice allowance was applicable for guidance services, there is substantial risk of creating a £500 'price point' for tailored guidance services. This would be to the detriment of people who cannot afford regulated advice, and risks widening the advice gap further."
However Cameron disagrees, adding: "Another strand of the Financial Advice Market Review is to develop new forms of guidance. We'd ask the Treasury to keep an open mind, perhaps allowing the pensions advice allowance to be used to cover new forms of guidance where offered by regulated firms."
Among other proposals, the money should be withdrawn from defined contribution (DC) pension pots only, because defined benefit (DB) pensions are not eligible for flexible drawdown and do not require the holder to buy an annuity.
"The government considers that the decisions to be made at retirement are likely to be less complex, and the need for advice not as great," said the Treasury in the consultation paper.
"Additionally, a disproportionately complex system would be required to administrate the withdrawal of the allowance from a defined benefit pension."
However, if a consumer has both DB and DC pensions they would be able to use the allowance on all their assets, including DB pensions.
Cameron agrees that it would be "too complex" in DB schemes and supports the government's decision to allow those who also have a DC pot to use the money for all their pensions.
The consultation runs until 25 October.