Employer-arranged pensions advice exemption
Published 5 December 2016
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Who is likely to be affected
Employees whose employers either arrange or pay for pensions advice which would otherwise be treated as a taxable benefit in kind.
General description of the measure
The measure introduces a new income tax exemption to cover the first £500 worth of pensions advice provided to an employee in a tax year. It will allow advice not only on pensions, but also on the general financial and tax issues relating to pensions. The changes replace existing provisions which limited the exemption solely to pensions advice and was capped at £150 per employee per tax year.
Policy objective
This exemption was recommended as an outcome of the recent Financial Advice Market Review (FAMR) conducted jointly by HM Treasury and the Financial Conduct Authority (FCA). This reflects the government’s acknowledgement that individuals aged 55 or more are making significant decisions on the application of their pension savings and may wish to seek advice.
The FAMR concluded that there is a particular advice gap in relation to pensions. The government is keen to ensure that financial advice is affordable and accessible to consumers, especially those nearing the point of retirement. The government wants to encourage employers to provide advice to employees to help them make informed choices about what to do with their pension savings.
Background to the measure
The measure was announced at Budget 2016, following the recommendations from the FAMR. We have not consulted formally on the changes as the issue have been covered by the FAMR consultation, which received 268 responses.
Detailed proposal
Operative date
The measure will have effect on and after 6 April 2017.
Current law
The current exemption for pensions advice is set out in Regulation 5 of the Income Tax (Exemption of Minor Benefits) Regulations 2002 (SI 2002/205).
Proposed revisions
Legislation in Finance Bill 2017 will introduce a new exemption into Part 4 of the Income Tax (Earnings and Pensions) Act 2003.
The exemption will apply if the advice is made available to employees generally or to employees generally at a particular location. However, it will also be capable of applying when the pensions advice is tailored to the employee’s specific personal circumstances of nearing retirement either by age or ill health. The legislation will achieve this by setting two alternative qualifying conditions. Condition A encapsulates the ‘availability’ conditions, and condition B allows the exemption where the employee has either reached the ‘minimum qualifying age’ or ‘ill-health condition’.
The exemption will apply to the first £500 worth of pensions advice provided to an employee in a tax year, whether the employer pays for or reimburses the employee for the cost of the advice.
The current exemption set out in Regulation 5 of the Income Tax (Exemption of Minor Benefits) Regulations 2002 will no longer be required and will be repealed.
Legislation for National Insurance purposes will be introduced following passage of Finance Bill 2017.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| - | -10 | -10 | -5 | negligible |
These figures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to have an impact on family formation, stability or breakdown. Individuals will only be impacted if they are offered this benefit but it is a wholly relieving provision. The measure is not expected to have any impact on households.
Equalities impacts
The measure will have an equal effect on all employees who are provided with pensions advice covered by the new exemption. HM Revenue and Customs (HMRC) has had due regard for equality to comply with section 149 of Equality Act 2010 (and similar Northern Ireland legislation). The new legislation can apply to any member of the working population whose employer offers this support.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on businesses.
Pensions advice is currently a taxable benefit unless it is very restricted in scope and costs £150 or less per individual in the relevant year. Employers therefore currently have to report the value of the benefit if this amount is exceeded; under this measure they will no longer have to report those between £150 and £500 provided the other conditions are met.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
No operational impact on HMRC.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns and communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact the Employment Income Team on email: employmentincome.policy@hmrc.gsi.gov.uk.