Seeking professional independent financial advice is arguably the best way to navigate the maze of retirement income options.
Without advice, those approaching retirement are left to decipher a wide range of different options, with only information or guidance for help.
In the Budget earlier this year, the government announced it would consult on introducing a Pensions Advice Allowance.
The Pensions Advice Allowance was one of the recommendations contained within the Financial Advice Market Review.
It would allow people to take £500 tax free from their defined contribution (money purchase) pension pots to redeem against the cost of financial advice.
This tax-free £500 withdrawal would be in addition to the tax-free cash ultimately available from the pension pot when retirement benefits were taken in the future.
It would be possible to access the £500 Pensions Advice Allowance before age 55, when retirement benefits otherwise become available.
By introducing this Pensions Advice Allowance, it is hoped that advice more affordable.
It would also mean people would not have to pay large fees out of their current income and might even act as a nudge for people to consider taking financial advice.
The Pensions Advice Allowance is expected to come into force in April 2017, at which time it could be combined with the existing existing £150 income tax and National Insurance exemption (due to be increased to £500) for employer-arranged advice on pensions.
Commenting on the new pension advice allowance, Fiona Tait, Pensions Specialist at Royal London, said:
“Royal London believes that offering pension savers an advice allowance is a very positive step.
“Research shows that people who take financial advice tend to save more towards their retirement and recent research by Royal London showed that 45% of those who had spoken to a financial adviser about their retirement saving, then continue to regularly review their finances with an adviser at least once a year.
“While it would be a challenge to offer a comprehensive face to face advice service within the £500 limit, this amount should be an adequate level to assist people to identify realistic goals and show them how to start planning for themselves.
“It is important that the allowance should be available to people well before they reach retirement as this could be too late.
“We also support allowing this option more than once, for example at key birthdays or life changes.”
A consultation for the new Pensions Advice Allowance is now open here, with responses invited by HM Treasury until 25th October 2016.