Under a new government scheme, from April 2017 a lot of savers will be able to withdraw £500 from their pension pots tax-free to put towards professional pensions advice. It will be available to millions of people, possibly as young as 45, along with the existing 25% that savers over 55 can take out tax-free.
It has been created to encourage people to think about and plan carefully for their financial future earlier than ever. There are various ways this £500 tax-free sum should be put to good use by those who can.
Withdrawing the Money
The tax-free benefit is only available to those with a ‘defined contribution’ pension pot and can be used for any fully regulated financial advice. This could be anything from pensions to investment advice, whether face-to-face, online or over the phone.
The money will be paid direct from the pensions account to the financial adviser, to ensure it is spent within the scheme’s terms. At the moment there is only one allowance for such an action, but the government is considering increasing this, as people’s financial situations will change over the years.
Advice Available for £500
On average it costs around £150 for an hour of financial advice face-to-face. This means £500 will only stretch to around two and a half hours, whereas most individuals will require a lot longer. However, online or over the phone can be cheaper, and people whose finances are in order may only need an hour or two.
There are many fully regulated financial services available, such as Tilney for help with personal investments. Decide on what kind of financial advice you are after, whether you are willing to add in extra funds for a more detailed, longer consultation and other important factors.
For those less willing to spend the full £500 (that is the maximum allowance, you could just use enough for an hour), there are cheaper options. Those over 50 and with a defined contribution pension can take advantage of the government’s free financial guidance, which won’t be as personalised or thorough but is a good starting place.
Certain places offer specialised retirement reports for around £200 as well. While you won’t receive spoken advice, it does provide a good overview of your current and predicted situation.
Consider all these options when deciding how you will spend some, if not all, of the £500 tax-free allowance when it comes into action in April 2017.