Pension Advice Allowance: leading providers don't offer key perk
Some of Britain's biggest providers are skimping on the Government's Pension Advice Allowance perk. Are you losing out?
Millions of investors are missing out on valuable financial advice as some pension firms fail to offer them access to a £1,500 ‘Pension Advice Allowance’.
Back in April, the Government introduced a new Pension Advice Allowance, which allows people to take £1,500 tax-free from their pension pot to pay for financial advice as they approach retirement.
Fast forward three months and millions are missing out on this tax perk as pension firms including Prudential, Royal London and Aviva are not allowing their clients access to the allowance.
What is the Pension Advice Allowance?
The allowance was introduced in order to combat the so-called ‘advice gap’, a concern that millions of people weren’t getting financial advice before accessing their pension savings. It’s hoped the allowance will help people pay for that valuable advice.
Under the new tax rules, you can now make up to three tax-free withdrawals of £500 in separate tax years to pay for the cost of getting advice from a regulated financial advisor. That said, pension providers aren’t required to offer the allowance by law, and as a result many aren’t bothering.
Why aren’t they offering the perk?
A Prudential spokesperson told the Telegraph it didn’t offer clients the Pension Advice Allowance due to there being “minimal demand” for it and it would be “complicated to administer”.
Aviva has said it may introduce the allowance if enough clients express an interest in it.
Other big pension firms, including Standard Life and Hargreaves Lansdown, have made the necessary changes in order to offer their clients access to this tax break.
For basic-rate taxpayers the allowance is worth £300, while higher rate taxpayers could save £600 by using the allowance.
What is the Pension Advice Allowance?
The allowance is available to anyone with money invested in a defined contribution pension regardless of age and you can use it three times. It's also open to 'hybrid' pension savers with a money purchase or cash element.
That means that over your lifetime you can spend up to £500 in three separate years on financial advice to help you assess your finances. You can use it to make sure you are on track to meet your retirement ambitions or, as you approach retirement, you could get advice on how best to use your pension savings.
The £500 lump sum can be used to pay for the cost of regulated financial advice, which can either be in the form of 'robo advice' or face-to-face meetings. It can be used alongside the tax exemption for employer arranged pension advice, you could potentially get up to £1,000 tax-free to use for advice in a year.
Your money is paid directly to your advisor, so you can’t just grab £500 from your pension and spend £150 on advice and the rest on anything you fancy. When you consult your advisor the money will be taken straight out of your pension.
If you do want to use the Pension Advice Allowance, make sure you follow the proper channels to access the money, get it wrong and you could be taxed up to 55% on the amount you withdraw. That’s the tax rate for ‘unauthorised withdrawals’ from your pension if you are under 55.
There's a clear difference between financial advice and financial 'guidance' though – some dodgy companies might be out to fool you so you should get in the know. Read more at Pension Advice Allowance: will your consultation be legitimate?
Read more on pensions:
Pension exit fees loophole: will you be charged more?
State Pension rise: insurance loophole could put workers at risk
Most Recent
Comments
-
Endowment mortgages were very good. The problem was not with the design of the product, it was that they were missold. They were originally intended to cover the full amount owing without relying on the bonuses. They were then missold and people were duped into relying on the bonus to pay off the mortgage. Bonuses fell and people were left with insufficient cover to pay the mortgage. Mine was not missold. It served me very well. I was able to pay off my final mortgage early and received the benefit of the bonus. I am very sorry that this product has disappeared.
REPORT This comment has been reported. -
Unless there is easy profit businesses will not bother, unless compelled by enforced law, to let the Pension Advice Allowance be applied. The more wriggle room that firms are given the more they will avoid "unprofitable expenses". My personal experience is that I and my spouse are our best advisors just as long as we can obtain factual information on which to base decisions. The last time I took advice I transferred my funds to Equitable Life. What a mistake. I and many others are still waiting for the government compensation that was agreed over that mess.
REPORT This comment has been reported. -
So I can take £1500 of my hard earned and invested pension and give it to a "financial advisor?" Who are these people? Presumably the same people who were saying how wonderful endowment mortgages were 30 years ago. I wonder if MPs will be required to pay for the same advice for their gilt edged pensions? "Was the fin on your back part of the deal?" - Death on Two Legs, Freddie Mercury, 1975.
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
07 August 2017