Pension holders, specifically defined contribution (DC) members, may utilise a pensions advice allowance which is intended to allow members and beneficiaries of DC pension schemes and hybrid pension arrangements with cash balance benefits or other money purchase benefits to take £500 from their scheme to redeem against the cost of retirement financial advice, without incurring an unauthorised payment tax charge. Yesterday, Guy Opperman, the Pensions Minister, called for the treasury to increase the allowance further.
During a Work and Pensions Committee hearing, he made the following comments: “We should be looking at whether it is sufficient and we should be looking at working with HM Treasury and the Financial Conduct Authority to provide a better product.”
He continued to note the current allowance is “too low to be getting an efficacious outcome for the individual”.
While the Minister’s intention was commendable and well-intentioned, Kay Ingram, the Director of Public Policy at LEBC, responded to the suggestions with alternative options: “Improving access to advice is key; however, there is another tax-free advice allowance which pension savers can take advantage of, and which may prove more beneficial – the Annual Advice Allowance.
“It is also set at £500, but it is available tax-free every year, unlike the Pensions Advice Allowance.”
“None of us should be waiting until the last minute to make major life changing decisions.”
Additionally, where an employer is unable to fund the allowance, employees can still benefit by arranging a payment for advice via salary sacrifice.
This option may be preferable under certain circumstances as it’ll save tax and National Insurance on the sum sacrificed, with Kay pointing out this could cut costs by between 32 and 47 percent.
She noted extending this allowance to the self-employed would help them plan for retirement, which is sorely needed as only 14 percent save regularly into a pension according to The Association of Independent Professionals and the Self-Employed (IPSE).
Currently, for the Pensions Advice Allowance, the maximum that can be taken is £1,500 over three years and as such, it is understandable why there have been calls for an increase.
However with just a handful of providers offering the service, Kay concluded with: “[This] provides little practical help to those planning their retirement over a 30-40 year working life, whereas the Annual Advice Allowance can be accessed every year and does not need pension provider co-operation.
“While the Minister’s plea is well-intentioned, we believe it would be far more beneficial if employers and trade unions were made more aware of the tax-free Annual Advice Allowance, especially if it is extended to the self-employed.”
The self-employed could use as much retirement support as possible, with IPSE also noting 67 percent of self-employed workers are seriously concerned about saving for later life.
According to the Money Advice Service, there are just under five million self-employed people in the UK, accounting for 15 percent of the UK workforce.
They highlight one of the big attractions of being self-employed, not having a boss or employer, is also a hindrance.
Most PAYE workers will have a workplace pension scheme set up for them which is continuously paid into.
There is no real equivalent for self-employed workers.
There are a number of private pension options available to self-employed and employed workers alike which includes personal pensions, stakeholder pensions and self-invested personal pensions (SIPPs).
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