A new government initiative is now available to ensure that pension holders have access to financial advice regarding their retirement. Research shows that when taking professional advice around pension planning you are more likely to save more and have a larger pot to draw down when you finish work.
What is the Pension Advice Allowance?
The Pension Advice Allowance was first mentioned in the Autumn Statement last year, and has since been signed off as a benefit available to all UK pension holders.
From April 2017, pension providers are now able to offer this allowance to their members.
It allows you to draw £500 from your pension fund, tax and penalty free, to put towards financial advice regarding your pensions and wider retirement plans.
This allowance can be used up to a maximum of three times, so a total allowance over your lifetime of £1,500.
It could be used initially when considering a new pension, an interim to ensure pension savings are on track, and when nearing retirement. This is just an example though, the allowance can essentially be used as you see fit, however only one time per tax year.
When initially announced, the Pension Advice Allowance was only going to be £500 for a one-off usage, however, the consultation earlier this year surrounding this new initiative ruled in favour for triple the benefit.
Anyone with a defined contribution pension can use the allowance, regardless of age or size of fund. This is great as it means people of all ages can engage with retirement planning.
The money can be used for either face-to-face advice with a financial adviser, or robo-advice so leaves flexibility for the user in how they seek answers for their questions.
The importance of retirement planning
Whatever your age, retirement planning is essential. Particularly where you are self-employed and envisage that the state pension would not meet your lifestyle needs.
Studies show that only less than a quarter of people (22%) know the value of their pension fund when nearing retirement.
Also, research shows that less than just 14% of people would be confident to plan and work towards retirement goals without the help of a financial professional.
UK savers, are reported by Unbiased, to save an average almost £100 more each month when their pension pot is in excess of £100,000. This means additional income of over £3,600 each year when you retire.
All in all, this shows that taking financial advice around important decisions like pension planning can result in highly positive outcomes for pension holders.
Pension contributions are tax efficient savings
Pensions are an excellent way to also save tax, in particular if you are nearing or already pay higher rate tax.
The value of your annual pension contributions is calculated and the basic-rate tax threshold is extended by the same amount. For example, if you make annual contributions to a pension of £5,000, you get to earn £5,000 extra income and only be taxed at 20%, not 40%.
It is a brilliant way to save for retirement whilst saving tax too.
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