Changes to funding of pensions and retirement advice

From April 2017 HM Treasury’s Pensions Advice Allowance will be introduced, permitting employees of any age to use up to £1,500 of their pension pot to pay for tax free pensions and retirement advice. In addition, the annual tax free employer allowance for advice will increase from £150 to £500 per year.


The details: employees can fund advice from their pension


The Government has now finished its eight week consultation on allowing members of Defined Contribution (DC) Pension schemes and hybrid schemes with a DC element to use some of their pension pot to pay for pensions and retirement advice.


From April 2017 a member of a DC scheme can take up to £1,500 from their pension pot, tax free, to put towards the cost of pensions and retirement advice. The monies can be taken in up to three separate transactions, each capped at £500 in any tax year. The allowance can be redeemed against the cost of regulated advice – including “robo advice” as well as traditional, face to face advice.


Annual employer pensions and retirement advice limit increased


If employers wish to fund some advice for their employees, this allowance, which was £150 pa, has been increased. The measure introduces a new income tax exemption to cover the first £500 pa worth of pensions advice provided to an employee in a tax year. It will allow advice not only on pensions, but also on the general financial and tax issues relating to pensions. In effect this means that funding up to £500 per tax year of pensions related advice is not a P11D benefit.


Further information


Both sets of allowances are available to employees of any age. This allows people to access retirement advice at different stages of their lives, for example when first choosing a pension or just prior to retirement.


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.”


Finch Employee Benefits believe this is a useful new concession which will appeal to employees who recognise the value of independent advice and wish to fund it in a tax efficient way through their pension scheme. The increase in the annual employer exemption from £150 to £500 per year is also a good reminder that employers can continue to use an innovative range of employee benefits to recruit, retain and reward their staff.