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Savers to receive £500 pre-retirement advice allowance

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Savers are to be offered a £500 tax-free allowance for financial advice as they approach retirement, the government has announced.

The Pensions Advice Allowance, which is due to come into force from April 2017, would allow consumers nearing retirement to take up to £500 from their defined contribution pension tax-free to put towards the cost of financial advice – either face-to-face or online, including robo advice.

The proposal was first announced in March as part of the Financial Advice Market Review.

The allowance would be available before the age of 55 but the government is consulting on specific details including the eligibility age and how best to promote awareness of the allowance.

Under the current plans, it will not be mandatory for pension providers to offer the allowance.

The government previously announced in the Budget that it would increase the tax exemption for employer arranged pensions advice from £150 to £500 from April 2017. If used in conjunction with the Pensions Advice Allowance, the two measures mean savers could benefit from £1,000 of tax advantaged financial advice.

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.

“It is therefore vital that people can access the financial help they need and feel confident choosing the support that works for them in their retirement.”

Fraud and misuse

The Treasury has warned there are a number of risks with the allowance including fraudsters pretending to be financial advisers and people using the allowance multiple times with multiple pension pots.

Under the proposals, the government said savers would be permitted to use the allowance more than once so they could take advice at different stages of retirement. But to counter misuse, there would be a limit on the total number of uses, for example to three uses per person. The government has called for industry input on how to mitigate fraud and misuse.

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