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22 Mar 2018
by Philip Curtis

Why financial wellbeing is a cross generational issue

The prospect of retiring on a generous final salary pension with index-linked increases has become the reserve of the lucky few.  Most of us don’t have that luxury, and are contributing to money purchase schemes, in the hope that we might create a big enough fund to keep us financially comfortable once we retire. 

The prospect of retiring on a generous final salary pension with index-linked increases has become the reserve of the lucky few.  Most of us don’t have that luxury, and are contributing to money purchase schemes, in the hope that we might create a big enough fund to keep us financially comfortable once we retire.  89A6-1520428407_WhyfinancialwellbeingMAIN.jpg

But how much is enough? And when we retire should we look to buy an annuity, adopt pension drawdown, take out a lump sum, or any mixture of these 

Pensions freedom was introduced in 2015, heralding a new era of flexibility and choice. Whilst the changes were generally welcomed, for many, the new options represent a baffling array of choice. 

Pensions advice through salary sacrifice 

Some help is at hand, thanks to some recently introduced government measures. In November 2017, the Finance (No 2) Act 2017 received Royal Assent. This included a new tax exemption which allows employees to save Tax and National Insurance on the first £500 worth of pensions-related financial advice, each tax year, when offered through a salary sacrifice scheme. (This is separate to the new Pensions Advice Allowance, which allows individuals to dip in to their pension fund to pay for advice.) 

This means that a typical higher-rate taxpayer will end up paying only £290 for £500 worth of advice, and will further benefit from the cost being spread over 12 months. 

The advice must be provided in connection with the employee’s pension arrangements or the use of their pension funds. It can include advice on general financial and tax issues relating to pension arrangements or pension funds, allowing employees to make informed decisions about saving for retirement. (This is a wider definition to that which applied to the previous £150 exemption, now withdrawn.) 

As with certain other government-endorsed salary sacrifice schemes, for the exemption to apply, the scheme has to be offered by an employer to all employees generally. There are provisions, however, for the scheme to be restricted by location, or by reference to relevant pensionable age, or if employees meet an ill health condition. 

The exemption applies to the first £500 of employer-arranged pension advice in a tax year, (starting with the 2017/2018) tax year.  Employees will be expected to meet any cost in excess of £500 directly with the adviser. 

The new exemption was originally detailed in an HMRC Policy paper, dated 5th December 2016 and followed up with Guidance published on 20th March 2017. The Guidance can be found here

Philip Curtis is chief executive of Avantus.

This article was supplied by Avantus. 

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