Pension advice £500 tax and penalty-free drawdown from 6 April 2017
Pension advice £500 tax and penalty-free drawdown from 6 April 2017
Tue 14 Feb 2017
From 6 April 2017 pension scheme members will have the freedom to make withdrawals of up to £500 from their pension pots to pay for advice about withdrawing and investing their pension funds. The £500 will not be taxed on withdrawal from the pension pot, regardless of the individual’s income and the individual will be able to make up to three such tax-free withdrawals at any time in their lifetime but only once in any one tax year.
This allowance is additional to, and totally separate from the tax-free allowance for pensions advice paid for or provided by an employer and can be used in the same year as the employer provides such advice.
The fund must have a cash element available to draw, so that the allowance can be withdrawn from defined contribution pensions and hybrid pensions with a money purchase or cash balance element.
The individual cannot receive the allowance personally: it must be paid directly from the pension scheme to a regulated financial adviser for regulated financial advice and nothing else.
The Government will be publicising the availability of the allowance through “nudge” promotions and advertising.
Pension-related advice
The scope of advice for which the allowance can be used is deliberately widely drawn to enable appraisal of the individual’s entire financial situation and needs in retirement. It can therefore include advice on:
• how best to access income in retirement, including from any of their pension pots, ISAs or other investments;
• whether projected income will be sufficient or may need to be supplemented, e.g. by equity release;
• risk factors such as the choice of drawdown products in the context of the individual’s other investments; and
• funding care needs in old age.
Non-pension-related advice excluded
The allowance will not include advice that is not strictly related to retirement. So inheritance tax planning advice and advice restricted to investments that are not intended at all to provide income in retirement are outside the scope of the allowance.
Separate from employer-provided advice
This new allowance is additional to the allowance for employer-provided or funded advice which will continue.
The limit on employer-provided or funded advice will be increased from £150 per year to £500 from 6 April 2017 and both allowances will be able to be used in the same year.
Consultation
The response to consultation sets out a description of the measure and it is worth noting that it is proposed that taking the Pensions Advice Allowance will not affect the individual’s ability to take up to 25% of the remaining funds in their pension pot as a tax free lump sum when they ultimately come to take their benefits, it will not be deducted from the maximum permitted pension commencement lump sum, it will not count as a Benefit Crystallisation Event and there is to be no restriction on taking the Pensions Advice Allowance based on the crystallisation status of the fund. The draft regulations and explanatory notes have been released for comments which may be made up until 28 February 2017.
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There are some excellent points made here – the advice is great. Thank you so much. It is great to see the advice going round in the pension industry