YOUR PORTFOLIO
THE ADVICE AGE COMETH
You can now use money from your pension pot to pay for financial advice , but Maggie Williams says stringent rules around its withdrawal appear to be hampering take-up
LUXURY WATCH . AN
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ENTRY-LEVEL SEASON TICKET for Brighton and Hove Albion Football Club . Fifty months ’ worth of Netflix access ; 50,000 penny chews . The ways of spending £ 500 are many and varied .
You could also make a single taxfree withdrawal from your pension scheme to fund advice , using the new Pensions Advice Allowance . Introduced in April 2017 , the allowance enables pension-scheme members to withdraw up to three tranches of £ 500 from their pension pot tax-free to pay for professional guidance . Each of the withdrawals must be made in a separate tax year , and the money can only be used for advice about pensions .
The introduction of “ freedom and choice ” reforms in April 2015 has heightened the need for affordable advice for pension savers . Anyone over the age of 55 can now take their money out of a workplace defined contribution pension whenever they like . It can be taken as cash , to buy a flexible drawdown product , purchase an annuity – or a mixture of all three .
With that flexibility comes the need for greater understanding of the choices on offer . There are questions of tax efficiency , and ensuring that the approach savers choose for their pension savings will sustain them for the rest of their life .
But scheme members are often unwilling to take advice . The Financial Conduct Authority ’ s ( FCA ) July 2017 Retirement Outcomes Review found 30 per cent of drawdown products are now being bought without advice – compared with 5 per cent before freedom and choice was introduced . The Association of British Insurers ( ABI ) found that 94 per cent of individuals who did not take advice simply invested in products from their incumbent pension provider .
Is the Pensions Advice Allowance the solution ? “ In theory , it is useful ,” says Simon Harrington , senior public policy adviser at the Personal Investment Management & Financial Advice Association . “ People coming up to retirement are thrust into a market they don ’ t understand and the fact the allowance is tax-free is beneficial .” While £ 500 may buy a lot of penny chews , it won ’ t fund much in the way of advice . “ It could cover basics such as ‘ am I paying enough into my pension ?’, or ‘ am I in the right risk profile ?’, or perhaps help with finding an annuity ,” says Debbie Falvey , DC proposition leader at Aon . “ But
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