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This publication is available at https://www.gov.uk/government/publications/pensions-tax-pensions-advice-allowance/pensions-tax-pensions-advice-allowance
Who is likely to be affected
Individual members and beneficiaries of defined contribution pension schemes, and hybrid pension arrangements with cash balance benefits or other money purchase benefits.
Pension scheme administrators of defined contribution pension schemes, and hybrid pension arrangements with cash balance benefits or other money purchase benefits.
General description of the measure
The measure amends existing regulations and will provide for a Pension Advice Allowance payment to be a new authorised payment for the purposes of the Finance Act (FA) 2004. Authorised payments don’t attract the tax charge that applies when a registered pension scheme makes an unauthorised payment.
The Pensions Advice Allowance payment is intended to allow members and beneficiaries of defined contribution pension schemes and hybrid pension arrangements with cash balance benefits or other money purchase benefits to take £500 from their scheme to redeem against the cost of retirement financial advice, without incurring an unauthorised payment tax charge.
Individual members and beneficiaries will be able to take £500 tax free, no more than once in a tax year, and up to a maximum of 3 times in total.
With more people saving, and more choice about how to use those savings, the need to offer people support in making the choices that are right for them has become more pressing. However, the high quality financial advice available in the UK is not always accessible or affordable for individuals with lower levels of wealth and the government wants to ensure that those who want or need to are able to access financial help to help them make these decisions.
Background to the measure
The government is committed to ensuring that consumers are supported in making good financial decisions. The pension flexibilities introduced in April 2015 gave savers the ability to access their pension savings flexibly, as best suits their needs. This means that many consumers have a wider range of options to consider when they reach retirement.
However, high quality financial advice in the UK is not always accessible or affordable for all. The Financial Advice Market Review recommended introducing a pensions advice allowance, and the government announced at Budget 2016 that it would consult on introducing a Pensions Advice Allowance.
The measure will have effect for payments made on or after 6 April 2017.
The current pensions tax rules for registered pension schemes came into force on 6 April 2006 and are set out in Part 4 of FA 2004.
Section 164 of FA 2004 provides for authorised member payments, that is, payments that don’t attract the tax charge that applies when registered pension schemes make an unauthorised payment.
The Registered Pension Schemes (Authorised Payments) Regulations 2009 (S.I.2009/1171)(the 2009 Regulations) introduced a variety of further payments that will be authorised payments when made by registered pension schemes to or in respect of its members.
This measure amends the 2009 Regulations to provide that a Pension Advice Allowance payment by a registered pension scheme will be an authorised payment for the purposes of section 164 of FA 2004, if the conditions set out in the new regulation 21 of the 2009 Regulations are met.
Summary of impacts
Exchequer impact (£m)
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This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
The only impact of this measure on individuals and households is that individuals will have to apply to the Pension Scheme Administrator to use the Pensions Advice Allowance where available, and declare how many times they have previously used it. The measure is not expected to impact on family formation, stability or breakdown.
It is not anticipated that there will be any particular impacts on people with protected characteristics. Impact on business including civil society organisations
This measure will affect regulated providers of financial advice. We expect they may receive a greater number of requests for retirement financial advice. We expect this measure to be good news for the pensions industry generally.
This measure will affect pension scheme administrators. The Pension Advice Allowance is not mandatory, schemes have a choice whether to offer the allowance or not. This measure is expected to have a negligible impact on businesses. One-off costs include familiarisation with the new rules. There are not expected to be any on-going costs included, as the member or beneficiary will make a self-declaration regarding how many times they have used the Pension Advice Allowance. Pension scheme administrators will also not be required to provide any additional information to HM Revenue and Customs (HMRC) as a result of this measure.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with industry representatives, in particular regarding the amount of the Pensions Advice Allowance.
If you have any questions about this change, please contact Karen Bishop on Telephone: 03000 512336 or email: firstname.lastname@example.org.
Jane Ellison MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.