"While the Minister’s plea is well-intentioned, we believe it would be far more beneficial if employers and trade unions were made more aware of the tax-free Annual Advice Allowance"
Currently, employees can receive up to £500 tax-free every year to provide financial advice on workplace pensions and associated benefits.
The maximum Pensions Advice Allowance which can be taken, in up to three payments over three separate tax years, is therefore £1,500, with just a handful of pension providers offering the facility.
Speaking during a work and pensions committee hearing, Opperman said: "We should be looking at whether it is sufficient and we should be looking at working with HM Treasury and the Financial Conduct Authority to provide a better product."
He added that the current allowance could be “too low to be getting an efficacious outcome for the individual”.
Where an employer is unable to fund the allowance, employees may still benefit by arranging a payment for advice via salary sacrifice. This saves tax and National Insurance on the sum sacrificed, cutting the cost of advice by between 32% and 47%. As such, £500 of advice will cost a basic rate taxpayer just £340 and a top rate taxpayer £265.
Evidence shows that those who take regular advice are better prepared for retirement, with a recent study from Royal London showing that those who took advice were £47,706 better off at retirement than those who did not. It also revealed that 90% of those taking advice paid for via their workplace were more satisfied with their workplace pension as a result.
Kay Ingram, director of public policy at national financial planning group LEBC, commented: “Improving access to advice is key; however, there is another tax-free advice allowance which pension savers can take advantage of, and which may prove more beneficial – the Annual Advice Allowance. It is also set at £500, but it is available tax-free every year, unlike the Pensions Advice Allowance.
“Paying regular attention to retirement savings is more likely to result in a better retirement, and the £500 Annual Advice Allowance is a cost-effective way for employers to help their staff get the most out of workplace pensions. None of us should be waiting until the last minute to make major life changing decisions.
“While the Minister’s plea is well-intentioned, we believe it would be far more beneficial if employers and trade unions were made more aware of the tax-free Annual Advice Allowance, especially if it is extended to the self-employed.”
