Treasury triples pension advice allowance to £1,500

The Pensions Advice Allowance (PAA), which was first mooted during last year's Budget, will provide for three separate £500 withdrawals in order to pay for advice.

The £1,500 allowance is higher than originally touted in the Treasury's consultation, which closed to responses in October. The proposal at the time was to allow a one-off £500 withdrawal, and only for savers under age 55.

Current provisions allow savers to access £150 from a DC pot for advice related solely to the same pot.

Under the new rules, the £1,500 allowance can only be withdrawn from schemes with defined contribution (DC) sections, and not for purely defined benefit (DB) funds, and can only be used once per tax year.

Savers of any age will be able to access the allowance, with the payment being made directly from the scheme to a regulated financial adviser, or robo-adviser.

Economic secretary to the Treasury Simon Kirby said: "Pensions and savings decisions are some of the most important a person will make during their lifetime. This allowance will help people get the vital financial help they need to plan for their retirement."

The PAA will be able to be used for advice which is strictly related to retirement, including how to draw an income from all pension pots or a stocks and shares ISA, whether that income will be sufficient, whether asset allocation of a drawdown product is appropriate, and how to fund care in old age.

The announcement received a lukewarm reaction from the industry, with some questioning whether the allowance was high enough and too prescriptive.

AJ Bell senior analyst Tom Selby welcomed the allowance, but argued savers may still not be able to afford advice.

"The introduction of the advice allowance is an improvement on the existing system, but we need to be realistic about what this will achieve," he said.

"According to the Treasury's own analysis, face-to-face advice costs £150 per hour on average, and can take up nine hours for pensions - meaning with the allowance you still might have to make up a shortfall of £850."

He added the allowance was not a "panacea that will magically solve the UK's advice gap".

Barnett Waddingham senior consultant Malcolm McLean similarly commended the increased allowance, but said the terms of the allowance are restrictive.

"The Treasury's rethink on the level of the allowance overall is welcome," he said. "Tripling the amount from £500 to £1,500 produces a much more meaningful figure to facilitate individuals obtaining financial advice to assist with their pension plans, and ultimately obtain a better outcome from then.

"What I am less happy about, however, are the prescriptive conditions on the use of the allowance. By requiring consumers to limit the amount of the allowance to £500 per tax year, and thus spread it out over three years, the Treasury is imposing quite an unnecessary restriction, which could well make the proposition much less appealing.

"I hope the Treasury can be persuaded to change tack on this particular aspect and provide more flexibility in the forthcoming draft regulations in due course."

The policy will be introduced in April, subject to a three-week technical consultation. 

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• Topics
• Defined Contribution
• HM Treasury
• advice
• robo advice
• Simon Kirby
• Tom Selby
• Malcolm McLean
• Aj Bell
• Barnett Waddingham