The Government’s new pensions advice allowance will impose a “negligible” cost on providers and the Exchequer, a new policy paper says.
The paper, published by HM Revenue & Customs alongside draft legislation yesterday, follows a Treasury announcement last week that the allowance, which allows tax-free early pension withdrawals to pay for financial advice, would be increased from £500 to £1,500.
This can be accessed in £500 blocks, but must be in separate tax years.
The policy paper says businesses will not face any new costs from facilitating the allowance because the withdrawals will work on a self-declaration basis.
It says: “One-off costs include familiarisation with the new rules. There are not expected to be any ongoing costs included, as the member or beneficiary will make a self-declaration regarding how many times they have used the pension advice allowance.”
However, Nucleus product technical manager Rachel Vahey says with such low costs a higher pensions advice allowance could have been made available.
Vahey says: £500 can go some way to helping meeting the costs of advice, but probably not to meeting the full costs. A higher amount could help people meet all or most of their advice costs, encouraging them to seek advice at the right time to help their retirement planning.”
The HMRC policy paper also confirms the pensions advice allowance is open to pension scheme members’ beneficiaries as well.
It also says those wanting to take advantage of the pensions advice allowance will have to apply in writing to the pension scheme and declare how many times they have previously used it.
Vahey adds: “Providers and advisers don’t have to check this information. But if they spot any misuse then they have to blow the whistle, and either contact HMRC or prevent the client using the pension advice allowance.”
A Treasury spokeswoman said the Government did not have an estimate of how many people would use the allowance.