The Government says it will take on board recommendations in the Financial Advice Market Review and introduce a Pensions Advice Allowance, which will allow people to take £500 tax free from their DC (defined contribution) pension to help pay for the cost of financial advice.
The tax-free amount would be in addition to the normal 25% tax free allowance and would also be available before the age of 55.
The government has also stated that the new allowance can be be redeemed against all fully regulated advice services, including automated advice models, but will only be available for DC pensions and not final salary.
In a statement, the government explained: “One reason for this decision is that defined benefit pensions are not eligible for flexible drawdown, and do not require the holder to purchase an annuity. Therefore, 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.
“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 defined benefit and defined contribution pensions they would be able to use the Pensions Advice Allowance to get advice on all of their pension assets, including the defined benefit pensions.”
Although the Allowance will initially be limited to £500 per use, the government is holding further consultation talks on whether to allow multiple uses of the allowance to enable individuals to get advice at different points of retirement.
Its consultation also invites comments on the exact age from which the allowance should be available.
The Treasury also added that offering the Pensions Advice Allowance would not be mandatory for pension providers, but will ‘encourage the majority of defined contribution schemes to offer the allowance’.